Debt-to-EBITDA Ratio Calculator: How Leveraged Is It?

What does a 4.00 debt-to-EBITDA ratio mean?

On the defaults — $500,000 of total debt and $125,000 of EBITDA — the debt-to-EBITDA ratio is 4.00, which means four years of earnings to repay the debt. The ratio is the debt divided by the earnings: $500,000 ÷ $125,000 = 4.00. A ratio of 2.00 means two years of earnings, and a ratio of 8.00 means eight years — the higher the number, the more years of earnings the debt takes.

Three things about the model are worth stating plainly.

First, the division is $500,000 ÷ $125,000 = 4.00. Second, the meaning is four years of earnings to repay the debt — the ratio IS the years. And third, the ratio is displayed to two decimals, half-up, and a ratio that displays as 5.00 can sit below the line: $624,999 of debt gives 4.9999920, and $166,667 of EBITDA gives 2.9999940 — both display as their targets but sit below them — all listed in Accuracy & limitations.

The worked example, line by line

Setup: total debt $500,000, EBITDA $125,000.

Line 1 — the division. $500,000 ÷ $125,000 = 4.00.

Line 2 — the meaning. 4.00 means four years of earnings to repay the debt.

Line 3 — the check. At $625,000 of debt the ratio is 5.00; and at $624,999 it is 4.9999920 — below 5.00, though it displays as 5.00.

Every branch, checked

Debt $250,000: total debt $250,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 2.00; years of earnings to repay the debt 2.00 — With debt of $250,000 the ratio falls to 2.00 — two years of earnings to repay the debt.

Debt $750,000: total debt $750,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 6.00; years of earnings to repay the debt 6.00 — With debt of $750,000 the ratio rises to 6.00 — six years of earnings.

Debt $1,000,000: total debt $1,000,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 8.00; years of earnings to repay the debt 8.00 — With debt of $1,000,000 the ratio rises to 8.00 — eight years of earnings.

Debt $600,000: total debt $600,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 4.80; years of earnings to repay the debt 4.80 — With debt of $600,000 the ratio rises to 4.80.

EBITDA $100,000: total debt $500,000.00; EBITDA $100,000.00; debt-to-EBITDA ratio 5.00; years of earnings to repay the debt 5.00 — With EBITDA of $100,000 the ratio rises to 5.00 — five years of earnings.

EBITDA $200,000: total debt $500,000.00; EBITDA $200,000.00; debt-to-EBITDA ratio 2.50; years of earnings to repay the debt 2.50 — With EBITDA of $200,000 the ratio falls to 2.50.

EBITDA $250,000: total debt $500,000.00; EBITDA $250,000.00; debt-to-EBITDA ratio 2.00; years of earnings to repay the debt 2.00 — With EBITDA of $250,000 the ratio falls to 2.00 — two years of earnings.

EBITDA $62,500: total debt $500,000.00; EBITDA $62,500.00; debt-to-EBITDA ratio 8.00; years of earnings to repay the debt 8.00 — With EBITDA of $62,500 the ratio rises to 8.00 — eight years of earnings.

EBITDA $150,000: total debt $500,000.00; EBITDA $150,000.00; debt-to-EBITDA ratio 3.3333333; years of earnings to repay the debt 3.33 — With EBITDA of $150,000 the ratio falls to 3.33 (unrounded 3.3333333).

The reverses, worked backwards

Smallest debt for the ratio to REACH 5.00: At the displayed $625,000 the figures are total debt $625,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 5.00; years of earnings to repay the debt 5.00. At $625,000 the ratio is 5.0000000 (unrounded) — exactly on the 5.00 line. At $624,999 the ratio is 4.9999920 (unrounded) — it displays as 5.00 but is below the target — so $625,000 is the smallest debt for the ratio to reach 5.00.

Largest EBITDA for the ratio to STAY at or above 5.00: At the displayed $100,000 the figures are total debt $500,000.00; EBITDA $100,000.00; debt-to-EBITDA ratio 5.00; years of earnings to repay the debt 5.00. At $100,000 the ratio is 5.0000000 (unrounded) — exactly on the 5.00 line. At $100,001 the ratio is 4.9999500 (unrounded) — it displays as 5.00 but is below the target — so $100,000 is the largest EBITDA for the ratio to stay at or above 5.00.

Smallest debt for the ratio to REACH 3.00: At the displayed $375,000 the figures are total debt $375,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 3.00; years of earnings to repay the debt 3.00. At $375,000 the ratio is 3.0000000 (unrounded) — exactly on the 3.00 line. At $374,999 the ratio is 2.9999920 (unrounded) — it displays as 3.00 but is below the target — so $375,000 is the smallest debt for the ratio to reach 3.00.

Largest EBITDA for the ratio to STAY at or above 3.00: At the displayed $166,666 the figures are total debt $500,000.00; EBITDA $166,666.00; debt-to-EBITDA ratio 3.0000120; years of earnings to repay the debt 3.00. At $166,666 the ratio is 3.0000120 (unrounded) — it displays as 3.00 and is ABOVE the target. At $166,667 the ratio is 2.9999940 (unrounded) — it displays as 3.00 but is BELOW the target — so $166,666 is the largest EBITDA for the ratio to stay at or above 3.00, not $166,667: the exact closed form is 166,666.67, which rounds up to 166,667, but 166,667 gives a ratio below the line.

Smallest EBITDA for the ratio to FALL to 2.00: At the displayed $250,000 the figures are total debt $500,000.00; EBITDA $250,000.00; debt-to-EBITDA ratio 2.00; years of earnings to repay the debt 2.00. At $250,000 the ratio is 2.0000000 (unrounded) — exactly on the 2.00 line. At $249,999 the ratio is 2.0000080 (unrounded) — it displays as 2.00 but is above the target — so $250,000 is the smallest EBITDA for the ratio to fall to 2.00.

Largest debt for the ratio to STAY at or below 2.00: At the displayed $250,000 the figures are total debt $250,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 2.00; years of earnings to repay the debt 2.00. At $250,000 the ratio is 2.0000000 (unrounded) — exactly on the 2.00 line. At $250,001 the ratio is 2.0000080 (unrounded) — it displays as 2.00 but is above the target — so $250,000 is the largest debt for the ratio to stay at or below 2.00.

A warning about the neighbours: every neighbour above sits one dollar from the star, and every neighbour displays as the target when rounded to two decimals, yet sits below or above it. The ratio is linear in debt and one over EBITDA, so every reverse has an exact closed form: the debt needed is the target times the EBITDA, and the EBITDA allowed is the debt divided by the target. The page prints the unrounded ratios in full so the rounding does not mislead you: 5.0000000, 4.9999920, 4.9999500, 3.0000000, 2.9999920, 3.0000120, 2.9999940 and 2.0000080.

What the defaults assume

The defaults are total debt $500,000 and EBITDA $125,000 — total debt $500,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 4.00; years of earnings to repay the debt 4.00. With Debt $250,000, total debt $250,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 2.00; years of earnings to repay the debt 2.00. With Debt $750,000, total debt $750,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 6.00; years of earnings to repay the debt 6.00. With Debt $1,000,000, total debt $1,000,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 8.00; years of earnings to repay the debt 8.00. With Debt $600,000, total debt $600,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio 4.80; years of earnings to repay the debt 4.80. With EBITDA $100,000, total debt $500,000.00; EBITDA $100,000.00; debt-to-EBITDA ratio 5.00; years of earnings to repay the debt 5.00. With EBITDA $200,000, total debt $500,000.00; EBITDA $200,000.00; debt-to-EBITDA ratio 2.50; years of earnings to repay the debt 2.50. With EBITDA $250,000, total debt $500,000.00; EBITDA $250,000.00; debt-to-EBITDA ratio 2.00; years of earnings to repay the debt 2.00. With EBITDA $62,500, total debt $500,000.00; EBITDA $62,500.00; debt-to-EBITDA ratio 8.00; years of earnings to repay the debt 8.00. With EBITDA $150,000, total debt $500,000.00; EBITDA $150,000.00; debt-to-EBITDA ratio 3.3333333; years of earnings to repay the debt 3.33 (unrounded 3.3333333). With EBITDA $0, total debt $500,000.00; EBITDA $0.00; debt-to-EBITDA ratio undefined — total debt ÷ zero — total debt ÷ zero has no answer. With EBITDA −$50,000, total debt $500,000.00; EBITDA −$50,000.00; debt-to-EBITDA ratio −10.00; years of earnings to repay the debt −10.00 — the company is losing money while carrying debt. With Fractional inputs, total debt $437,654.32; EBITDA $123,456.78; debt-to-EBITDA ratio 3.5450003; years of earnings to repay the debt 3.55 (unrounded 3.5450003). With Debt $0, total debt $0.00; EBITDA $125,000.00; debt-to-EBITDA ratio 0.00; years of earnings to repay the debt 0.00 — no debt at all. With Debt $624,999, total debt $624,999.00; EBITDA $125,000.00; debt-to-EBITDA ratio 4.9999920; years of earnings to repay the debt 5.00 (unrounded 4.9999920) — displays 5.00 but is below the 5.00 target. With EBITDA $100,001, total debt $500,000.00; EBITDA $100,001.00; debt-to-EBITDA ratio 4.9999500; years of earnings to repay the debt 5.00 (unrounded 4.9999500) — displays 5.00 but is below the 5.00 target. With Debt $1,000,000, EBITDA $83,333.33, total debt $1,000,000.00; EBITDA $83,333.33; debt-to-EBITDA ratio 12.0000005; years of earnings to repay the debt 12.00 (unrounded 12.0000005). With Debt $0, EBITDA $0, total debt $0.00; EBITDA $0.00; debt-to-EBITDA ratio undefined — 0 ÷ 0 — 0 ÷ 0 has no answer. With Debt −$50,000, total debt −$50,000.00; EBITDA $125,000.00; debt-to-EBITDA ratio −0.40; years of earnings to repay the debt −0.40 — negative debt means the company holds more cash than debt, a net-cash position.

A note on the rounding: the ratio is displayed to two decimals, half-up. At $624,999 of debt the unrounded ratio is 4.9999920 — it displays as 5.00 but is below the 5.00 target. At $100,001 of EBITDA the unrounded ratio is 4.9999500 — it displays as 5.00 but is below the 5.00 target. At $374,999 of debt the unrounded ratio is 2.9999920 — it displays as 3.00 but is below the 3.00 target. At $166,666 of EBITDA the unrounded ratio is 3.0000120 — it displays as 3.00 and is above the 3.00 target. At $166,667 of EBITDA the unrounded ratio is 2.9999940 — it displays as 3.00 but is below the 3.00 target. At $249,999 of EBITDA the unrounded ratio is 2.0000080 — it displays as 2.00 but is above the 2.00 target. At $250,001 of debt the unrounded ratio is 2.0000080 — it displays as 2.00 but is above the 2.00 target. With the fractional inputs the unrounded ratio is 3.5450003 — it displays as 3.55. With $1,000,000 of debt and $83,333.33 of EBITDA the unrounded ratio is 12.0000005 — it displays as 12.00. The page prints the unrounded ratios so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The lender screening a borrower: they learn $500,000 of debt on $125,000 of EBITDA gives a ratio of 4.00 — four years of earnings to repay the debt — and they check the $625,000 reverse to see the debt that pushes the ratio to 5.00.
• The investor checking a holding: they learn a ratio of 2.00 means two years of earnings — and they check the $250,000 reverse to see the earnings that bring the ratio down to 2.00.
• The analyst comparing two companies: they learn the ratio is linear in debt and one over earnings — and they check the $166,666 reverse to see the earnings that hold the ratio at or above 3.00.
• The student learning leverage: they learn the ratio is total debt ÷ EBITDA — and they check the $375,000 reverse to see the debt that pushes the ratio to 3.00.

Accuracy & limitations

The math is first-principles: the debt-to-EBITDA ratio is total debt divided by EBITDA — all in dollars, the ratio displayed to two decimals half-up, and the years of earnings to repay the debt are the ratio itself. At $0 EBITDA the ratio is UNDEFINED (total debt ÷ zero — division by zero) — the calculator shows “undefined” with a note, never a number, never hidden. At $0 debt AND $0 EBITDA the ratio is UNDEFINED (0 ÷ 0) — the calculator shows “undefined” with a note, never a number, never hidden. At −$50,000 of EBITDA the ratio is −10.00 — negative earnings flip the sign, the company is losing money while carrying debt — the calculator shows the −10.00 figure with a note, never hides it. At −$50,000 of debt the ratio is −0.40 — negative debt means the company holds more cash than debt, a net-cash position — the calculator shows the −0.40 figure with a note, never hides it. What the model cannot do is judge the company: the ratio says nothing about cash in the bank, interest rates, when the debt falls due, or whether the earnings will hold up next year — and EBITDA is not cash flow, because it leaves out interest, tax, depreciation and amortisation, so a company can show strong EBITDA and still be short of cash. Total debt here means everything the company owes, short-term and long-term together — if you leave out a lease or a loan, the ratio is wrong before it starts. Use it to see how many years of earnings the debt takes — then check the cash, the interest bill and the story before you lend or invest.

Frequently asked questions