How would you calculate EBITDA if you have two balance sheets for consecutive years?

To calculate EBITDA, the most relevant method is to start with net income and then add back interest, taxes, depreciation, and amortization. This approach is correct because EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) aims to evaluate a company's overall operational performance without the effects of capital structure and tax environments.

Starting with net income gives a clear picture of the profits the company made during the year, and by adding back interest and taxes, you eliminate the effects of financing decisions and tax strategies, thus focusing purely on operational efficiency. Including back depreciation and amortization is critical as well, since these are non-cash expenses that reduce net income but do not reflect cash available from core operations.

The other methods presented do not accurately lead to calculating EBITDA. For instance, subtracting total liabilities from total assets does not account for operating performance, while adjusting revenue growth overlooks necessary income statement components needed to accurately reach EBITDA. Taking the difference in cash from year to year does not gauge operational performance in relation to earnings and does not factor in non-cash expenses. Thus, method C not only reflects the definition of EBITDA but also offers the correct pathway to arrive at the desired financial metric.