What is the net debt-to-EBITDA ratio?
The net debt-to-EBITDA ratio is debt minus cash, divided by EBITDA: a measure of how heavily a company has borrowed relative to its earnings. It roughly shows how many years of current EBITDA it would take to repay net debt. Lenders and rating agencies use it to judge default risk. US bank regulators' 2013 guidance said total debt above 6 times EBITDA raises concerns for most industries.
Why it matters to a revenue leader
This ratio is how lenders see the company, and in a PE-backed business it is often the ratio covenants test. Revenue that comes in below plan lowers EBITDA and raises the ratio, even when debt stays the same. A CRO who understands this knows why the CFO treats a soft quarter as a financing issue.
How to calculate it
Net debt-to-EBITDA = (total debt minus cash and cash equivalents) ÷ EBITDA.
Common mistake: using a different EBITDA definition from the one in the loan agreement, which can hide how close the company is to its limit.
Example
Fictitious numbersA fire sprinkler contractor has $64M of debt, $4M of cash and EBITDA of $15M. Net debt is $60M, so the ratio is 4.0 times. If EBITDA grows to $20M with the same net debt, the ratio falls to 3.0 times.
"What is our ratio today, what limit does our loan agreement set, and how much EBITDA cushion does that leave?"
Sources
- Net Debt/EBITDA Ratio checked 9 Oct 2026
- Interagency Guidance on Leveraged Lending (Federal Reserve, 2013) checked 9 Oct 2026