ValueBit - Defining Cash Flow
There are a couple of key financial numbers you will want to acquaint yourself with and constantly monitor as a business owner. The chief measure of cash flow that is used to determine business value is EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is the number that is usually multiplied by some multiplier (to be discussed in a future newsletter) to result in an enterprise value for the company. In smaller companies, the number often used for cash flow is SDE – Seller’s Discretionary Earnings. SDE is simply EBITDA plus Owner’s Salary and Perks. Obviously the multiple of SDE is going to be lower than the multiple of EBITDA for the same company. Next month, we will discuss situations where most business buyers will look beyond EBITDA as a cash flow measure.
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ValueBits are concise and we hope informative articles written by the partners of Delta Capital Group. We hope you find them of value!
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