Stock Meadow · Metric glossary · Financial health
Net Debt to EBITDA: formula and how to read it
Net debt to EBITDA estimates how many years of operating earnings it would take to repay a company's borrowing. Lenders and analysts use it as a quick leverage check.
What is Net Debt to EBITDA?
Years of earnings needed to pay off debt. Total debt less cash and cash equivalents, divided by positive trailing EBITDA. Negative values represent net cash.
Stock Meadow groups it under Financial health, and shows it in tables as Net debt/EBITDA.
Formula and a worked example
Net debt / EBITDA = (total debt − cash and cash equivalents) ÷ positive trailing twelve-month EBITDA
A company with $500 million of debt, $100 million of cash and $200 million of EBITDA has a net debt to EBITDA of (500 − 100) ÷ 200 = 2.0 years. The numbers are made up for illustration.
How to read it
Lower is stronger: less debt relative to earnings. A negative figure means the company holds more cash than debt (net cash).
When Stock Meadow ranks stocks, a lower figure scores better.
Common pitfalls
- It is blank when EBITDA over the last 12 months was negative.
- EBITDA is not cash flow: capital spending, interest and tax still have to be paid.
- Banks and insurers get no net debt ratio, because borrowing is part of their business.
How Stock Meadow handles gaps. Usually blank when EBITDA over the last 12 months was negative.
Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.
Stock Meadow models that use it
Fixed-recipe models that score it: GARP (Peter Lynch).
In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.
Read about every scoring model on the scoring models page.
Frequently asked questions
- What is a good net debt to EBITDA ratio?
- Lower is safer, and a negative figure means net cash. What counts as comfortable depends on the industry and how stable the earnings are, so compare similar companies.
- Is a higher or lower Net debt/EBITDA better?
- When Stock Meadow ranks stocks, a lower figure scores better. That is a ranking convention, so read Net debt/EBITDA alongside other measures and compare similar companies.
- Why is Net debt/EBITDA blank for some stocks?
- It is usually blank when EBITDA over the last 12 months was negative. Stock Meadow leaves the figure blank rather than guessing it.
Use Net debt/EBITDA in Stock Meadow
Filter on Net debt / EBITDA, score it in your own screen, and see how every stock compares. Free during the preview.
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