Net debt to EBITDA (Net debt/EBITDA)
How many years of pre-tax, pre-depreciation earnings it would take to repay borrowings net of cash.
It is the leverage measure lenders actually write into covenants, so it is the one that can force a company's hand.
How it is computed here
(Total debt - cash) / EBITDA
Measured over the latest complete fiscal year, as filed. Filed under health. Lower is the stronger reading, other things equal.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 1.00x | Low leverage |
| 1.00x to 2.50x | Moderate |
| 2.50x to 4.00x | Elevated |
| 4.00x and above | High, covenant territory |
A practitioners’ convention, not an estimated boundary. Convention among credit analysts rather than an estimated boundary; leveraged-loan maintenance covenants commonly sit between 3.0x and 4.0x.
When it misleads
- Negative when the company holds more cash than debt, which is good news displayed as a negative number.
- EBITDA ignores the capital spending needed to keep earning, so the true repayment capacity is lower than this suggests.
- Meaningless when EBITDA is negative.
Not meaningful for banks, insurers: the product prints n/m with the reason rather than a number for them.
Ten filed years of it, company by company
Any covered company has the page at /metrics/net-debt-to-ebitda/TICKER. These are the ones with at least 5 computed years among the largest companies covered, listed alphabetically.
AAPL · ABBV · ABT · ADI · AMAT · AMD · AMGN · AMZN · ANET · APH · ASML · AVGO · AZN · BABA · BHP · CAT · COST · CRM · CSCO · DELL · DHR · DIS · GILD · GOOG · HD · INTC · KO · LIN · LRCX · MA · MCD · MSFT · MU · NEE · NFLX · NVDA · PEP · PG · PM · QCOM · RTX · STX · T · TM · TMO · TMUS · TSLA · TXN · UNH · UNP · V · VZ · WMT
Questions
How is net debt to ebitda calculated?
(Total debt - cash) / EBITDA. Measured over the latest complete fiscal year, as filed.
What does net debt to ebitda tell a value investor?
It is the leverage measure lenders actually write into covenants, so it is the one that can force a company's hand.
When does net debt to ebitda mislead?
Negative when the company holds more cash than debt, which is good news displayed as a negative number. EBITDA ignores the capital spending needed to keep earning, so the true repayment capacity is lower than this suggests. Meaningless when EBITDA is negative.