Debt/EBITDA ratio definition


Debt/EBITDA ratio measures company’s ability to cover its’ debt (short term as well as long term). It indicates the period during which total liabilities (debt) could be paid off. Data to calculate this ratio is collected from balance sheet, income and cash flow statements.

This ratio interests company’s investors while making a decision whether to invest or not in the company. To calculate this ratio EBITDA is used as one of the summands, which means depreciation and amortization are not included.

Norms and limitations

There are no general norms for this ratio.

Usually it is not recommended to compare the value of this ratio between companies from the different industries.


Debt (total debt, total liabilities) is calculated by adding together long term debt with short term debt. These two measures can be easily located on the balance sheet.

EBITDA is calculated by adding net income plus interest expense plus taxes plus depreciation and amortization.