Net debt/EBITDA
Definition · Level 10 · Valuation
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Leverage in “turns”: borrowings less cash, divided by operating earnings before depreciation and amortization. Rule of thumb: about 1–2x comfortable, 4x or more highly levered for most sectors (utilities carry more).
Example
Brewline: net debt 300 ÷ EBITDA 200 = 1.5x, “one and a half turns”.
Rules and market figures change: check the current ones before relying on this.
Where Tradecraft teaches it
Level 10 · Valuation, in the lesson “Balance-sheet health: leverage and liquidity”: Debt/equity, net debt, net debt/EBITDA, interest coverage, current and quick ratios.
Related terms
- Current ratioCurrent assets ÷ current liabilities: whether resources turning into cash within a year cover the bills due within a year.
- Current vs quick ratioCurrent assets ÷ current liabilities, versus a stricter test that keeps only cash, short-term investments and receivables in the numerator…
- Debt/equityTotal debt ÷ shareholders’ book equity: a leverage gauge.
- Interest coverageEarnings before interest and taxes (EBIT) ÷ interest expense: how many times operating profit covers the interest bill.
- Net debtTotal debt minus cash and equivalents. A negative figure means the company holds more cash than it owes (a “net cash” position).
- 10-K / 10-Q / 8-KFilings with the US Securities and Exchange Commission: the audited annual report, the unaudited quarterly report, and the current report for…