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Financial Encyclopedia


Financial Encyclopedia

Net Debt/EBITDA ratio


The Net Debt / EBITDA ratio measures financial leverage and a company’s ability to pay off its debt.

More detailed

Net Debt to EBITDA Ratio = Net Debt / EBITDA, where

EBITDA is earnings before interest, taxes, depreciation, and amortization.
Net debt =  short-term debt + long-term debt – cash and cash equivalents.


It is believed that the Net Debt/EBITDA ratio should not exceed 3. This value means that the company does not have excessively high debt and is able to service its debt obligations.


If the ratio of net debt to EBITDA is high, this indicates additional risks when investing in a company. Generally, a value above 4-5 is considered high. However, the level of debt burden can vary greatly by industry due to differences in capital requirements and the characteristics of a particular industry. That is why it is best used to compare companies in the same industry.


According to Ranks methodology, this indicator is analyzed in the Financial position block and used along with other indicators to calculate the score. 

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