Debt-to-EBITDA Ratio Calculator
Evaluate corporate leverage and estimate credit ratings. Calculates the payback period for debt using EBITDA and maps results to S&P/Moody's tiers.
About
The Debt-to-EBITDA ratio acts as a proxy for the approximate time a company would need to pay off its debt using only its operational earnings. Credit rating agencies and corporate lenders heavily scrutinize this metric to assign risk grades. A lower ratio implies the company generates sufficient cash to service its obligations easily while a high ratio signals potential distress or an overly aggressive capital structure. M&A transactions often hinge on this number as it dictates how much leverage a buyer can place on the target company. Investment grade companies typically strive to keep this ratio below 3.0x whereas private equity buyouts may push it above 5.0x temporarily.
Formulas
The metric compares total debt obligations against earnings before interest, taxes, depreciation, and amortization.
Note: EBITDA = Operating Profit + Depreciation + Amortization.
Reference Data
| Ratio Range (x) | Implied S&P Rating | Implied Moody's | Color Code | Interpretation |
|---|---|---|---|---|
| < 0.5 | AAA | Aaa | Green | Minimal Debt / Cash Rich |
| 0.5 − 1.5 | AA | Aa | Green | Very Strong Capacity |
| 1.5 − 2.5 | A | A | Green-Yellow | Strong Capacity |
| 2.5 − 3.5 | BBB | Baa | Yellow | Adequate (Investment Grade Limit) |
| 3.5 − 4.5 | BB | Ba | Orange | Speculative / Junk |
| 4.5 − 6.0 | B | B | Orange-Red | Highly Speculative |
| > 6.0 | CCC/D | Caa/C | Red | Distressed / Default Risk |
| < 0.0 | N/A | N/A | Grey | Negative EBITDA (Critical) |