What is a good debt-to-EBITDA ratio? (2024)

What is a good debt-to-EBITDA ratio?

In general terms, a debt to EBITDA ratio up to 3 is acceptable; a ratio of 4 to 5 indicates elevated risk. And a ratio above 5 indicates significant financial difficulties and the strong likelihood that the company will be unable to borrow additional funds.

What is a bad debt to EBITDA ratio?

Generally, net debt-to-EBITDA ratios of less than 3 are considered acceptable. The lower the ratio, the higher the probability of the firm successfully paying off its debt. Ratios higher than 3 or 4 serve as “red flags” and indicate that the company may be financially distressed in the future.

What is too high for debt to EBITDA?

A high ratio result could indicate a company has a debt load that might be too high. Banks often include a certain debt-to-EBITDA target in the covenants for business loans, and a company must maintain this agreed-upon level or risk having the entire loan become due immediately.

What is considered a good EBITDA ratio?

A good EBITDA margin is relative because it depends on the company's industry, but generally an EBITDA margin of 10% or more is considered good. Naturally, a higher margin implies lower operating expenses relative to total revenue, while a low or below-average margin indicates problems with cash flow and profitability.

What is the rule of thumb for debt to EBITDA ratio?

Total Debt ÷ Rolling 12 months EBITDA

Total debt includes all external/bank term debt facilities. EBITDA = earnings before interest, tax, depreciation and amortisation. As a rule of thumb, the ratio should be <2.5 times (*exceptions apply).

What is too high for debt to ratio?

Key takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.

What is acceptable range for debt ratio?

By calculating the ratio between your income and your debts, you get your “debt ratio.” This is something the banks are very interested in. A debt ratio below 30% is excellent. Above 40% is critical. Lenders could deny you a loan.

What is the debt to EBITDA ratio of Coca Cola?

Coca-Cola Co's annualized Debt-to-EBITDA for the quarter that ended in Sep. 2023 was 2.39. A high Debt-to-EBITDA ratio generally means that a company may spend more time to paying off its debt.

What is an example of a debt to EBITDA ratio?

Net Debt to EBITDA Ratio Calculation Example

By dividing the net debt balance by EBITDA, the net debt leverage ratio is 4.0x in Year 1. For each period in the rest of the forecast, Year 2 to Year 5, we'll assume a $5 million and $10 million paydown of the short-term debt and long-term debt, respectively.

What is a healthy debt to equity ratio?

The optimal D/E ratio varies by industry, but it should not be above a level of 2.0. A D/E ratio of 2 indicates the company derives two-thirds of its capital financing from debt and one-third from shareholder equity.

What does EBITDA really tell you?

EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternate measure of profitability to net income. By including depreciation and amortization as well as taxes and debt payment costs, EBITDA attempts to represent the cash profit generated by the company's operations.

Is 40% EBITDA margin good?

The Rule of 40 – popularized by Brad Feld – states that an SaaS company's revenue growth rate plus profit margin should be equal to or exceed 40%. The Rule of 40 equation is the sum of the recurring revenue growth rate (%) and EBITDA margin (%).

Is a higher or lower EBITDA ratio better?

The thumb rule is that a company with lower EV/EBITDA is more attractive. The condition is that the debt should not be high-cost debt and the equity must be fairly valued in the market. Also the EBITDA margins should be predictable. The P/E ratio has to be linked to growth rate.

What is the debt to EBITDA ratio of Apple?

Apple has a low net debt to EBITDA ratio of only 0.43. And its EBIT covers its interest expense a whopping 515 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. But the other side of the story is that Apple saw its EBIT decline by 5.9% over the last year.

What is the average debt to EBITDA ratio for private equity?

At present, total Debt-to-EBITDA multiples are averaging roughly 4-4.5x for deals under $250 million in enterprise value (EV) and 7x for larger buyout transactions.

Is a debt ratio of 70% good?

As it relates to risk for lenders and investors , a debt ratio at or below 0.4 or 40% is low. This shows minimal risk, potential longevity and strong financial health for a company. Conversely, a debt ratio above 0.6 or 0.7 (60-70%) is a higher risk and may discourage investment.

Is a debt ratio of 75% good?

Interpreting the Debt Ratio

Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low. However, what constitutes a “good debt ratio” can vary depending on industry norms, business objectives, and economic conditions.

Is 20% a good debt ratio?

Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”

What is a bad debt ratio?

The bad debt to sales ratio represents the fraction of uncollectible accounts receivables in a year compared to total sales. For example, if a company's revenue is $100,000 and it's unable to collect $3,000, the bad debt to sales ratio is (3,000/100,000=0.03).

Is 0.5 a good debt ratio?

Generally, a lower ratio is better, as it implies that the company is in less debt and is less risky for lenders and investors. A debt-to-equity ratio of 0.5 or below is considered good.

What does a debt ratio of 70% mean?

If a company has a 70 percent debt to total assets ratio, approximately 70 cents of every dollar of assets is owed to the company creditors.

What is Pfizer's debt to EBITDA ratio?

Pfizer has a low debt to EBITDA ratio of only 1.4.

What is Pepsi debt ratio?

PepsiCo Debt to Equity Ratio: 2.381 for Sept.

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Is 2.5 a good debt-to-equity ratio?

Although it varies from industry to industry, a debt-to-equity ratio of around 2 or 2.5 is generally considered good. This ratio tells us that for every dollar invested in the company, about 66 cents come from debt, while the other 33 cents come from the company's equity.

What is Apple's debt-to-equity ratio?

30, 2023.