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

Debt-to-EBITDA Ratio Calculator

Enter the company's total debt in USD.
Enter the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) in USD.

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:

\(\text{Debt-to-EBITDA Ratio} = \frac{\text{Total Debt}}{\text{EBITDA}}\)

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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