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. Debt Service

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

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

    A metric that shows a company's overall debt situation by netting ...
Related Articles
  1. A Clear Look At EBITDA
    Markets

    A Clear Look At EBITDA

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

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

  3. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  4. EBITDA: Challenging The Calculation
    Options & Futures

    EBITDA: Challenging The Calculation

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center