Glossarytaught in M2.02, E11.01
Net debt to EBITDA
Also called net debt/EBITDA, net leverage.
Net debt divided by EBITDA. Roughly, how many years of cash profit it would take to repay the borrowings.
Net debt of ₹1,020 crore against ₹1,340 crore of EBITDA puts a company at 0.76 times.
Lenders write it into covenants, so it matters beyond analysis. Breaching it can trigger a repayment demand regardless of whether the business is sound. Covenant definitions in the loan agreement often differ from the published one, adjusting for leases, for one-off items, or for the EBITDA of acquisitions made mid-year.
Three times is a common comfort ceiling for an industrial, and the figure is much higher for infrastructure with contracted cash flows.
Read the covenant as well as the ratio.
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