I have an LOI in place for a business and am starting the process of raising debt. I just got access to the company's tax returns. Taxable income is much, much lower than the SDE figures the company has provided, which isn't necessarily a surprise; However, what does concern me is that the relationship between sales and SDE varies wildly -- they made more sales in 2021 than 2020, for example, but while their taxable income indicated a strong profit in 2020, they reported a sizable tax loss in###-###-#### Their P&L trajectory is much closer, but even there the relationship doesn't fully make sense at first glance. I've asked the seller and broker to provide a reconciliation but want to do some calculations myself (and especially before engaging legal and a financial due diligence firm, just in case there's an obvious problem). Has anyone come across a reliable and concise primer on how to get to something that can credibly be called SDE from form 1120? While my GAAP accounting is ok, small business and tax accounting are still fairly new to me.

Thanks!