Net Debt / EBITDA shows the relationship between Net Debt and EBITDA.
EBITDA abbreviates 'Earnings before Interest and Taxes, Depreciation and Amortisation'.
Net Debt shows the company's indebtedness and should be as low as possible. Net Debt/EBITDA shows the size of the Net Debt against the company's earnings (EBITDA).
Some industries (e.g. real estate, oil & gas, shipping) with high levels of borrowing often have high Net Debt/EBITDA. Always compare with companies within the same industry.
Things to keep in mind
- Net Debt/EBITDA = 3 shows that Net Debt is three times greater than the company's earnings (EBITDA).
- Net Debt/EBITDA should be as low as possible, but not negative.
- If the earnings (EBITDA) is Negative, Net Debt/EBITDA will be negative.