Lesson 2: Understanding Net Income and Seller's Discretionary Earnings

What You'll Learn in This Course

• Understanding Net Income vs. SDE: You'll learn the key differences between net income and Seller's Discretionary Earnings (SDE), and why SDE is a more accurate metric for evaluating small businesses.

• Reading and Analyzing Profit & Loss Statements: You'll gain insights into how net income is calculated from P&L statements, including which taxes and expenses typically appear and how they affect a business's financial outlook.

• Calculating Seller’s Discretionary Earnings (SDE): We'll dive into how SDE adds back owner salaries, interest, taxes, depreciation, and amortization to provide a clearer view of a business's true earnings potential.

• Handling Depreciation, Amortization & Non-Cash Expenses: Learn how non-cash expenses like depreciation and amortization affect net income and how to adjust for them when calculating SDE.

• Evaluating Add-Backs for Accurate Financial Comparisons: You'll understand how to verify add-backs, including one-time and personal expenses, to ensure you're getting a clear and accurate picture of a business's earnings.