Debt to EBITDA ratio

What is Debt to EBITDA ratio?

Debt to EBITDA ratio counts as Total debt divided by EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. This ratio is used as an indicator to predict the overall profitability of a business, company or firm before taxes and other accounting items.

Formula:

Total debt / EBITDA

What does Debt to EBITDA ratio mean?

It shows if a company is able to pay its debts and obligations, if needed, with its earnings. Sometimes EBITDA is considered a more accurate indicator of profit from a company’s activities because it calculates earnings before any other accounting items are factored in. Therefore the Debt to EBITDA Ratio can provide a clearer understanding of the available funds to pay off debt.