Every metric, fully explained

SDE represents the total economic benefit available to a single owner-operator. It is the most commonly used earnings metric for small business acquisitions (typically under $5M in revenue). SDE adds back the current owner's compensation and benefits because the buyer will replace them.

EBITDA measures operating profitability before the effects of capital structure, tax environment, and non-cash accounting charges. It is the standard earnings metric for mid-market transactions.

Adjusted EBITDA normalizes EBITDA by removing one-time, non-recurring, or non-operating items. Common adjustments include owner perquisites, one-time legal costs, above/below-market rent, and related-party transactions.

CFADS approximates the cash flow available to service acquisition debt after essential expenses. It deducts a reasonable owner salary replacement, estimated taxes, maintenance capital expenditures, and working capital changes from Adjusted EBITDA.

DSCR measures how many times annual cash flow can cover the annual loan payments (principal + interest). A DSCR of 1.25x means cash flow is 25% more than the required debt payments.

NWC measures the short-term liquidity of the business. It represents the difference between what the business owns in the near term and what it owes in the near term.

Gross margin measures the percentage of revenue remaining after direct costs. It indicates pricing power and production efficiency.

UFCF represents cash flow before debt service obligations. It is used for DCF (Discounted Cash Flow) analysis and represents the cash flow available to all capital providers.

These working capital cycle metrics measure how quickly the business collects receivables, turns inventory, and pays suppliers.