Debt/EBITDA Ratio Calculator
| Ratio Range | Interpretation | Your Ratio | Status |
|---|---|---|---|
| Below 2.0 | Low leverage, strong coverage | - | - |
| 2.0 - 3.0 | Moderate leverage | - | - |
| 3.0 - 5.0 | High leverage | - | - |
| Above 5.0 | Very high leverage | - | - |
The Debt/EBITDA ratio measures a company's ability to pay off its debt. It shows how many years it would take for a company to pay back its debt using its EBITDA, assuming no change in these numbers.
• Stronger financial position
• Better ability to obtain financing
• Lower risk of default
• More attractive to investors
• Higher financial risk
• Potential credit downgrades
• Higher borrowing costs
• Limited financial flexibility
| Date | Total Debt | EBITDA | Debt/EBITDA Ratio | Leverage Status | Currency | Actions |
|---|
The Complete Guide to Debt/EBITDA Ratio Calculator
Simple explanations, real examples, and everything you need to understand financial leverage analysis
What is the Debt/EBITDA Ratio?
Think of the Debt/EBITDA ratio as a simple way to measure how much debt a company has compared to its ability to make money. It's like checking if someone's monthly credit card bills are too high compared to their monthly income.
In Simple Terms:
Imagine you earn $5,000 per month and have a $10,000 credit card debt. Your ratio would be 2 ($10,000 ÷ $5,000). This means you could pay off your debt in 2 months if you used all your earnings for that purpose.
Meet Our Debt/EBITDA Ratio Calculator
Try Our Interactive Calculator
Our calculator makes financial analysis easy - just enter your numbers and instantly see your debt coverage strength.
Key Features Explained Simply
Works Worldwide
Choose from 50+ currencies. No matter where you are, the calculator speaks your money language.
Remembers Your Work
Automatically saves your calculations so you can pick up right where you left off.
Clear Visual Results
Get instant color-coded feedback: Green for good, Orange for caution, Red for high risk.
Save & Share Results
Export your calculations as PDF, HTML, or text files to share with colleagues or keep for records.
Understanding Each Field with Examples
Total Debt
All the money a company owes. Like adding up all your personal loans, credit cards, and mortgages.
EBITDA
A company's earnings before interest, taxes, depreciation and amortization. Think of it as "operating cash flow."
Ratio Result
The final number showing how many years of earnings it would take to pay off all debt.
Real-World Example
Let's look at a fictional company called "TechWidgets Inc."
- Total Debt: $5,000,000 (bank loans + bonds)
- EBITDA: $2,000,000 (yearly earnings before expenses)
- Calculation: $5,000,000 ÷ $2,000,000 = 2.5
Result: Debt/EBITDA ratio = 2.5. This means it would take TechWidgets 2.5 years of their current earnings to pay off all debt.
The Simple Formula
The Debt/EBITDA ratio is calculated using this straightforward formula:
In our example:
$5,000,000 ÷ $2,000,000 = 2.5
What Your Ratio Number Means
Below 2.0: Strong
Like having low credit card balances compared to your income. Banks love this - it means you can easily handle your debt.
2.0 - 3.0: Moderate
Like having a mortgage that fits your budget. Manageable but requires attention.
Above 3.0: High Risk
Like having multiple maxed-out credit cards. Warning signs for investors and lenders.
Practical Examples for Different Businesses
Small Retail Store Example
- Total Debt: $150,000 (store mortgage + business loan)
- EBITDA: $75,000 (yearly store earnings)
- Ratio: 150,000 ÷ 75,000 = 2.0
- Interpretation: Healthy - could pay off debt in 2 years
Tech Startup Example
- Total Debt: $1,000,000 (venture debt + loans)
- EBITDA: $250,000 (early-stage earnings)
- Ratio: 1,000,000 ÷ 250,000 = 4.0
- Interpretation: High risk - needs careful monitoring
How to Use Our Calculator: Step by Step
- Step 1: Select your currency from the dropdown menu
- Step 2: Enter your Total Debt amount
- Step 3: Enter your EBITDA amount
- Step 4: Click "Calculate"
- Step 5: Review your color-coded results
- Step 6: Save or export if needed
Common Mistakes to Avoid
Mistake #1: Wrong Debt Amount
Don't forget to include ALL debt - both short-term (due within a year) and long-term debt.
Mistake #2: Inconsistent Time Periods
Make sure both debt and EBITDA numbers are from the same time period (usually yearly).
Mistake #3: Forgetting Industry Differences
A ratio of 3.0 might be normal for a utility company but terrible for a tech company.
Frequently Asked Questions (16 Essential FAQs)
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It's like looking at a company's core earnings from operations before accounting and tax stuff gets in the way.
A big debt number alone doesn't tell you much. $1 million in debt might be scary for a small shop but nothing for a large corporation. The ratio puts debt in context with earning power.
Generally: Below 3.0 is good, 3.0-5.0 is caution, above 5.0 is high risk. But this varies by industry - utilities often have higher ratios, while tech companies usually have lower ones.
Yes! A ratio below 1 means a company's annual earnings (EBITDA) are greater than its total debt. This is excellent and shows strong financial health.
For businesses: Quarterly or at least annually. For investors: Before making investment decisions and when reviewing financial statements.
Include all interest-bearing debt: bank loans, bonds, credit lines, and any other formal borrowing. Don't include regular accounts payable or operational expenses.
Debt/EBITDA looks at debt compared to earnings (cash flow). Debt-to-equity looks at debt compared to owner's investment. They're different perspectives on the same company.
Absolutely! Just think: Personal Debt ÷ Annual Income Before Taxes = Personal Debt/Earnings ratio. It works the same way.
Businesses operate globally. Whether you're in Japan (¥), Europe (€), or the UK (£), you can use your local currency for accurate calculations.
If EBITDA is negative (the company is losing money), the ratio doesn't make sense mathematically. This is a red flag that needs immediate attention.
The calculator uses precise mathematical formulas, so results are mathematically accurate. However, remember that garbage in = garbage out. Use accurate input numbers.
Yes! The calculator automatically saves your work locally. You can also manually save to history and export results in multiple formats.
The calculator works perfectly on mobile phones, tablets, and desktop computers. Just open it in your web browser.
Capital-intensive industries like telecommunications, utilities, and manufacturing often have higher ratios (3-5+) because they need lots of equipment and infrastructure.
Two ways: 1) Reduce debt (pay down loans), or 2) Increase EBITDA (grow earnings). Usually, a combination works best.
Yes! This is one of the most commonly used ratios by lenders, investors, and analysts worldwide to assess financial risk.
Pro Tips for Better Financial Analysis
Track Over Time
Don't just calculate once. Track your ratio quarterly to see trends. Is it improving or getting worse?
Compare with Peers
Your ratio alone doesn't tell the full story. Compare with similar companies in your industry.
Understand Limitations
This ratio has limits. It doesn't consider debt maturity dates or seasonal business fluctuations.
Use Multiple Ratios
Combine Debt/EBITDA with other ratios like current ratio and interest coverage for a complete picture.
Quick Formula Reference
Where:
- Total Debt = All interest-bearing obligations
- EBITDA = Revenue - Operating Expenses (excluding interest, taxes, depreciation, amortization)
- Result = Years of earnings needed to pay off debt