The standard leverage metric lenders use in loan covenants — distinct from debt-to-equity, which compares debt against the balance-sheet equity cushion instead of cash-flow capacity.
How it works
Total debt divided by EBITDA gives the debt-to-EBITDA ratio — roughly how many years of current cash-flow-generating capacity it would take to pay off all debt if fully applied to that purpose.
What this does not include
This uses a single period’s EBITDA — a business with cyclical or volatile earnings may show a misleadingly favorable or unfavorable ratio in any given year, worth checking against a multi-year average.
How to use this calculator
- Enter total debt and EBITDA.
A worked example
Total debt $2,000,000 against EBITDA of $500,000: debt-to-EBITDA ratio = 2,000,000 ÷ 500,000 = 4 — commonly viewed by lenders as a moderate leverage level.
What the variables mean
| Variable | Meaning |
|---|---|
| Total debt | All outstanding debt obligations |
| EBITDA | Earnings before interest, taxes, depreciation, and amortization |
Edge cases worth knowing
Lenders often use this ratio as a covenant threshold. A ratio above roughly 4-5 (varying by industry) can signal elevated credit risk and may trigger loan covenant violations, restricting a company’s flexibility.
Zero EBITDA makes the ratio undefined — there are no earnings to compare debt against, so the calculator returns no result.
Frequently asked questions
What’s considered a “high” debt-to-EBITDA ratio?
Thresholds vary by industry, but ratios above roughly 4x-5x are commonly viewed by lenders as elevated leverage, sometimes triggering covenant concerns in loan agreements.
Why use EBITDA instead of net income?
EBITDA strips out interest, taxes, depreciation, and amortization, isolating operating cash-flow-generating capacity independent of financing structure and non-cash accounting charges.
Is debt-to-EBITDA used in loan covenants?
Yes — it’s one of the most common financial covenants lenders write into credit agreements, sometimes with a maximum threshold the borrower must stay under.
