Our Debt-to-EBITDA Ratio Calculator enables you to measure a company’s ability to pay off its debt using its earnings before interest, taxes, depreciation, and amortization (EBITDA).

This ratio is a crucial metric for analyzing a company’s debt capacity and overall financial health. A lower ratio suggests stronger financial resilience and lower debt risk.

## Debt-to-EBITDA Ratio Calculator

## How to Interpret the Debt-to-EBITDA Ratio

The Debt-to-EBITDA Ratio measures a company’s ability to pay off its debt with its earnings before interest, taxes, depreciation, and amortization. It is an important metric to assess a company’s financial health and debt levels.

Below is a guide on how to interpret different Debt-to-EBITDA Ratios:

Debt-to-EBITDA Ratio | Interpretation |
---|---|

Below 2.5x | Low ratio: Strong financial health, low debt risk. |

2.5x to 4x | Moderate ratio: Manageable debt level, standard for many industries. |

Above 4x | High ratio: Higher financial risk, potential challenges in debt repayment. |

## Debt-to-EBITDA Ratio Formula and Calculation

The formula for calculating the Debt-to-EBITDA Ratio is straightforward. It is the ratio of a company’s total debt to its EBITDA.

**The formula is as follows:**

In this formula:

**Total Debt**includes all short-term and long-term debt.**EBITDA**stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of the company’s overall financial performance.

For example, if a company has total debt of $1,000,000 and an EBITDA of $250,000, the Debt-to-EBITDA Ratio would be:

\(\text{Debt-to-EBITDA Ratio} = \frac{1,000,000}{250,000} = 4\)This means the company has a Debt-to-EBITDA Ratio of 4x, indicating that it would take approximately four years of current earnings to pay off its debt.

## Common Debt-to-EBITDA Ratio Benchmarks

The ideal Debt-to-EBITDA Ratio can vary depending on the industry and the size of the company. However, here are some general benchmarks to keep in mind:

Industry | Typical Debt-to-EBITDA Ratio |
---|---|

Technology | 1.5x – 2.5x |

Manufacturing | 2x – 3.5x |

Utilities | 3x – 4.5x |

Retail | 2x – 3x |

While these benchmarks provide general guidance, it is important to consider the specific financial situation and market conditions of the company when evaluating the Debt-to-EBITDA Ratio.

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