IN PLAIN ENGLISH
A speed test for debt. It tells you how many years of profit (EBITDA) it would take to pay off all their net debt. Lower is safer.
FULL DEFINITION
A leverage ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant.
EXAMPLE
Net debt of $20M and EBITDA of $10M = 2.0x. It would take 2 years of profit to clear the debt.
HOW IT'S CALCULATED
Worked out by the app: Net Debt / EBITDA = (total debt − total cash) ÷ EBITDA. Total debt and total cash (which includes short-term investments) are the market data provider's figures from the most recent balance sheet it has; EBITDA is its trailing twelve month figure. A negative value means the company holds more cash than debt. Shows N/A when EBITDA is zero or negative, where the ratio means nothing.
Educational content only. It is not personal financial advice.