Debt and bankruptcy risk · updated October 21, 2026
What is the debt-to-EBITDA ratio and how is it calculated
Debt-to-EBITDA shows how many years the company would need to pay off all its debt from operating profit, if it spent nothing else. It is the ratio banks watch when they lend money.
Debt / EBITDA formula
- Net debt
- Loans and bonds, minus cash in the bank.
- EBITDA
- Operating profit before interest, tax, depreciation and amortization.
Worked example
A company has $12 billion of debt, $2 billion in cash and EBITDA of $4 billion.
From its operating profit, the company would pay off its debt in two and a half years.
How to read debt / EBITDA
Companies with very steady revenue (utilities, telecom) can carry a higher ratio than cyclical ones.
When debt / EBITDA can fool you
Adjusted EBITDA: indebted companies often show an "adjusted", higher EBITDA. Banks: the ratio is not used.
Related terms
Questions about debt / EBITDA
What debt-to-EBITDA is dangerous?
Above 4-5 for most companies. Rating agencies start cutting credit ratings above that level.
These explanations are for information only. They are not a recommendation to buy or sell.
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