Summary
The Debt-to-EBITDA Ratio compares a company’s total debt with its EBITDA. It gives investors a view of how large the company’s debt burden is relative to operating earnings.
This ratio is often used to assess leverage and debt repayment capacity.
Why it matters
Debt-to-EBITDA helps investors understand how many years of EBITDA would be needed to repay total debt, assuming EBITDA remained stable and was used for debt repayment.
It is commonly used by analysts, lenders, and bond investors when assessing financial risk.
How it is calculated
Debt-to-EBITDA Ratio = Total Debt ÷ EBITDA
How to read it
A lower Debt-to-EBITDA Ratio generally suggests stronger debt-servicing capacity. A higher ratio may indicate greater leverage and higher financial risk.
Acceptable levels vary by industry and company type.
Things to keep in mind
EBITDA is not the same as cash flow, and companies also need cash for taxes, capital expenditure, dividends, and working capital. This ratio should be reviewed alongside cash flow and interest coverage.