Debt/EBITDA ratio


This ratio typically is used to gain a sense for how many periods a company would have to operate at the same level of earnings in order to pay off its current level of debt. Although useful, this metric does not include the effects of excess cash or capital expenditures on a company's finances, and so should be used with caution when evaluating a company, as not all of the risk is accounted for within the ratio. See: Debt, Earnings before interest, taxes, depreciation, and amortization (EBITDA), Payback period

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Factor portfolio

A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors.

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