Net debt means a company's total debt minus its cash and short-term investments. It tells you how much the company would still owe if it used all the cash it holds to pay lenders back today. Net debt to EBITDA divides that figure by the company's yearly EBITDA (earnings before interest, taxes, depreciation and amortisation), so the answer reads as a number of years: roughly how long the operating profit would take to repay the net debt, if profit stayed the same and nothing else were paid. If cash is larger than debt, net debt is negative, which is called a net cash position. Companies and data sites disagree on whether lease obligations count as debt, so always check which version a figure uses.
Worked example
Company A has $600 million of borrowings (bank loans and bonds) and $150 million in cash. Net debt = $600 million minus $150 million = $450 million. Its EBITDA for the year is $150 million, so net debt to EBITDA = $450 million ÷ $150 million = 3.0, or about three years of operating profit. If Company A also reports $30 million of lease obligations and you count them as debt, net debt becomes $480 million and the ratio becomes $480 million ÷ $150 million = 3.2. The two answers are both correct; they simply use different definitions, which is why you compare companies only on the same one.
Why it matters
Net debt to EBITDA is one of the most common ways to ask how heavy a company's debt is compared with the profit available to carry it, which matters because lenders are paid before shareholders. The figures come from the annual report: debt and cash are on the balance sheet, while EBITDA is usually worked out from the income statement (operating profit plus depreciation and amortisation). The catch is that there is no single right level: companies with steady, predictable income can carry more debt than companies whose profit swings with the economy. EBITDA also ignores capital spending, taxes and interest, so a company can look comfortable on this measure and still have little cash left over. Cash held abroad or needed to run the business may not really be free to repay debt. A high or low reading is a question to look into, not a verdict, so compare it with companies in the same industry and with the company's own past years.
Frequently asked questions
It is net debt (total debt minus cash) divided by the company's yearly EBITDA. The result reads as a number of years: roughly how long the operating profit would take to repay the net debt if profit stayed the same. A higher figure means the debt is heavier compared with the profit.
Not always, and there is no single level that works for every company. Businesses with steady income can usually carry more debt than businesses whose profit swings. Treat the number as a question to look into, and compare it with similar companies and with the same company's earlier years.
It depends on the definition. Some companies and data sites include lease obligations as debt and some leave them out, which can change the ratio noticeably. Always check which version a figure uses before comparing two companies.
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Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.