Net margin

Definition

Profit as a share of revenue, which compares unlike businesses.

Why It Matters

For an owner-run business the useful version is SDE over revenue, since the owner's own pay sits inside the profit. Before spending anything on diligence, check whether a listing's margin is even believable for its trade. The IRS publishes totals by industry. A margin far above what profitable filers in that trade actually keep is really a claim about add-backs.

In numbers: A business with $3.6M of revenue and $540k of SDE runs a 15% SDE margin; if the trade's profitable filers average 12%, the extra three points are the add-backs you have to defend line by line.