Reading the accounts
Net debt / EBITDA
How many years of operating earnings it would take to repay net borrowings.
How it works
It is the standard leverage measure in lending. Below 2× is generally comfortable, above 4× is aggressive, though what is safe varies enormously by industry stability.
Loan agreements frequently contain covenants written on this ratio, which makes it a genuine operational constraint rather than an analytical convenience.
Formula
Leverage = net debt ÷ EBITDARelated terms
- Net debtTotal borrowings minus cash — what a company would still owe if it used all its cash to repay debt.
- EBITDAEarnings before interest, tax, depreciation and amortisation — a rough proxy for operating cash generation.
- CovenantA condition in a loan agreement that the borrower must keep to.
- Interest coverageHow many times over a company’s operating profit covers its interest bill.
More in Reading the accounts
- Net income
- Net margin
- Liabilities
- Off-balance-sheet
- Inventory
- Operating cash flow
- Operating expenses
- Intangible assets
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.