EBITDA

Definition

Profit before interest, taxes, depreciation, and amortization.

Why It Matters

Larger deals price on EBITDA multiples rather than SDE, and the two never compare because EBITDA already subtracts a market manager's pay. So the first question on any listing is which measure the multiple is built on, since an EBITDA multiple applied to SDE prices a full salary as if it were profit.

In numbers: A business showing $510k of SDE would show about $360k of EBITDA after paying a $150k manager to replace the owner, which is why an SDE multiple and an EBITDA multiple are never comparable.