Module II· Trading ComparablesIntermediate

Question

How do you handle stock-based compensation in trading multiples?

Answer

Two approaches:

Add-back method (older): add SBC back to EBITDA as a non-cash item. This inflates EBITDA artificially, because SBC is a real cost (it dilutes shareholders).
No add-back (today's standard): SBC stays in EBITDA, treated as a genuine expense.

Important

Consistency between target and comps. At US tech comps (Adobe, Salesforce historically 8−12% of revenue in SBC) this drives large multiple differences. Middle-market companies: typically no SBC programs — the adjustment is rarely relevant.

Deep diveShow more details

Pitch tip

'We use stated EBITDA without an SBC add-back, in line with market consensus post-2020' — signals awareness of the debate.

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