How are people calculating SDE?

October 01, 2025

by a searcher from University of Louisville in St. Louis, MO, USA

How are people calculating SDE, especially on the time component: rolling average over 1 year, 2 years, or 3 years, assuming the data is available?

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Reply by a searcher
from The University of Chicago in Santa Cruz, CA, USA

TTM is the most useful, but last full year (with tax reporting) is more reliable. Averages are either unhelpful or misleading. I believe most businesses are down this year -- COVID bump ending, macro factors, etc -- and I would be cautious if broker is pitching you on averages.

Reply by a professional
from University of Akron in Charlotte, NC, USA

SDE is an adjustment to each period's reported financial information. I assume you're talking about what do you use for valuation purposes. First thing, valuation should be used for you and your decision making and negotiating process. It's not this objective number in the sense there really isn't a "correct" value. But, it should be objective for you in your process. Remember, if the seller has a broker, they are incentivized to get as big of deal as possible, which means making the SDE and multiple as big as possible. You need to own the valuation for yourself. Make the determination what value works for you. Also, remember... you have the power. You have tons of deals out there so you can walk away. Don't worry about the ones you missed. Worry about the ONE you buy. From a valuation perspective, I would always use some sort of average or adjusted SDE based on 3 years. You don't pay for one great year. That means nothing. You're not paying for potential. You're paying for what the business can reasonably be expected to produce in SDE. Don't let the selling broker control and influence you. You control the situation. You do what is right for you. And, if the deal doesn't fit that, then walk away.

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