Net Debt To EBITDA Ratio

AAA

DEFINITION of 'Net Debt To EBITDA Ratio'

A measurement of leverage, calculated as a company's interest-bearing liabilities minus cash or cash equivalents, divided by its EBITDA. The net debt to EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant. If a company has more cash than debt, the ratio can be negative.

INVESTOPEDIA EXPLAINS 'Net Debt To EBITDA Ratio'

The net debt to EBITDA ratio is popular with analysts because it takes into account a company's ability to decrease its debt. Ratios higher than 4 or 5 typically set off alarm bells because this indicates that a company is less likely to be able to handle its debt burden, and thus is less likely to be able to take on the additional debt required to grow the business. Ultimately, however, it depends on the benchmark of the industry you are looking at.

RELATED TERMS
  1. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  2. Debt-To-Capital Ratio

    A measurement of a company's financial leverage, calculated as ...
  3. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Debt Service

    The cash that is required for a particular time period to cover ...
  6. Net Debt

    A metric that shows a company's overall debt situation by netting ...
RELATED FAQS
  1. What are the main benchmarks that track the forest products sector?

    The cash flow to debt ratio looks at a firm’s operating cash flow versus its total debt, which includes its short- and long-term ... Read Full Answer >>
  2. What are some of the limitations and drawbacks of using a payback period for analysis?

    Limitations, or disadvantages, of using the payback period method in capital budgeting include the fact that it fails to ... Read Full Answer >>
  3. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  4. What are some common cash-debt strategies that occur during a spinoff?

    Cash-debt strategies that are commonly used to in a spinoff to enable the parent company to monetize the spinoff are debt/equity ... Read Full Answer >>
  5. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  6. How are fixed costs treated in cost accounting?

    Fixed costs are one of the two major inputs, along with variable costs, in cost accounting that are used by a company's management ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Markets

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  3. Fundamental Analysis

    Getting On The Right Side Of The P/E Ratio Trend

    Buying at the right time is crucial, but how do we know when that is?
  4. Options & Futures

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  5. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  6. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  7. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
  8. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  9. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  10. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!