Net Debt/EBITDA
Net Debt/EBITDA tells an investor roughly how many years of operating earnings a company would need to repay its debt after counting the cash it holds.
How it is calculated
(Long Term Debt (Total) + Current Part of Debt − Cash & Short Term Investments) ÷ EBITDA
- Unit
- Ratio
- Periods
- Quarterly, Annual
- Source
- Calculated by stockrow from the inputs below
Reading Net Debt/EBITDA
How to read it
stockrow adds long-term debt and the current part of debt, subtracts cash and short-term investments, and divides the resulting net debt by EBITDA. The ratio rises when a company borrows more, spends its cash or earns less EBITDA, and falls when it repays debt, builds cash or grows earnings. A negative value from a positive EBITDA means cash exceeds debt, so the company holds net cash. It is shown for each quarter and each fiscal year.
What is typical
Businesses with steady, predictable cash flows, such as utilities, telecoms and property owners, commonly carry more debt relative to EBITDA, while cyclical companies and technology firms often keep leverage low or hold net cash. Compare the figure with the median for the company’s sector.
Pitfalls
When EBITDA is small the ratio becomes very large, and when EBITDA is negative the ratio turns negative and cannot be read as a net cash position — check the sign of each part. EBITDA leaves out capital spending, interest and taxes, so it overstates the cash available to repay debt in capital-heavy businesses. Cash and debt are balance sheet snapshots and can change quickly, and not all of the cash may be free to repay debt.