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 Service

    The cash that is required for a particular time period to cover ...
  3. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  4. Net Debt

    A metric that shows a company's overall debt situation by netting ...
  5. Debt-To-Capital Ratio

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

    An indicator of a company's financial performance which is calculated ...
Related Articles
  1. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  2. A Clear Look At EBITDA
    Markets

    A Clear Look At EBITDA

  3. Getting On The Right Side Of The P/E ...
    Fundamental Analysis

    Getting On The Right Side Of The P/E ...

  4. EBITDA: Challenging The Calculation
    Options & Futures

    EBITDA: Challenging The Calculation

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center