EBITDA Calculator
Earnings before interest, tax, depreciation and amortization — with the owner's role paid at a market rate rather than added back, which is what a buyer installing management actually faces.
The address carries whatever you changed, so anyone opening it sees these numbers. Nothing is saved on our side.
EBITDA
$307,000
Earnings before interest, tax and non-cash charges, with the owner’s role paid at a market rate of $85,000. For an owner-operator, SDE is $392,000.
- $180,000
- Before tax
- $212,000
- $392,000
- One working owner
- $307,000
- Under management
- $85,000
- 54%
- Of SDE
Where the earnings come from
Every addback is a claim that a buyer will not face this cost. Each one has to be defensible on paper, because each one is worth its size times the multiple.
- Reported profit46%$180,000
- Owner's compensation31%$120,000
- Owner's benefits5%$18,000
- Interest6%$22,000
- Depreciation9%$35,000
- Amortization1%$5,000
- One-off expenses3%$12,000
- SDE$392,000
At a 3× multiple, a $12,000 addback a buyer rejects costs the seller $36,000 of price. This is why diligence spends more time here than anywhere else in a small deal.
Why the two figures differ
The gap is the market cost of the owner's own job — and it is the single most argued-over number in a small acquisition.
- SDE — what one working owner takes
- $392,000
- Less: market salary for that role
- −$85,000
- EBITDA — the same business under management
- $307,000
A seller quoting SDE and a buyer valuing EBITDA are $85,000 apart before either has mentioned a multiple. At 3× that is $255,000 of price — which is why the first question in any conversation should be which earnings the multiple is quoted against.
How this calculator works
The same addbacks as SDE, with one deliberate exception.
EBITDA = SDE − market salary for the owner’s role
Both figures start from the same profit and the same addbacks, so they cannot disagree with each other. The only difference is whether the owner’s job is treated as a cost the business will keep incurring.
A buyer who will run the business themselves is right to use SDE. A buyer who will hire a manager is right to use EBITDA. Neither is a trick; the mistake is comparing an offer on one basis to an offer on the other.
What EBITDA leaves out
- Capital expenditure. Depreciation is added back, but the machines still have to be replaced.
- Working capital. A growing business ties up cash in stock and receivables.
- Debt service. Interest is added back, but the buyer will have their own, usually larger. The DSCR Calculator is where that gets tested.
Questions people ask
Both add back interest, tax, depreciation and amortization. SDE also adds back the owner's own compensation, because a working owner keeps it. EBITDA does not, because it describes a business run by paid management. The difference between the two is exactly the market salary for the owner's role.
It depends who they are. An individual buying a job uses SDE, because they will do the work. A private equity firm or a strategic acquirer uses EBITDA, because they will install a manager and that manager's salary is a real cost. Businesses above roughly $5 million of value are almost always discussed in EBITDA.
Partly because EBITDA is the smaller number on the same business, so a higher multiple can still mean a lower price. Comparing a 5× EBITDA offer to a 3× SDE offer without doing the arithmetic is a good way to accept the worse of the two.
No, and treating it as such is the most common mistake made with it. EBITDA ignores capital expenditure, working capital movements and the actual cost of servicing debt. A business with heavy equipment replacement can report strong EBITDA and generate very little cash.
What the market would charge to hire someone to do that job — not what the owner currently pays themselves, which may be far more or far less for tax reasons. If the owner works sixty hours a week across two roles, the honest figure covers both.
Related calculators
An estimate built from figures you enter. EBITDA is not cash flow: it ignores capital expenditure, working capital and debt service.