---
title: "What Is Debt/EBITDA?"
term: "Debt/EBITDA"
description: "Debt/EBITDA is a leverage ratio comparing total debt to earnings before interest, taxes, depreciation, and amortization — showing how many years of operating earnings cover the debt load."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/debt-ebitda
---

# What Is Debt/EBITDA?

> Debt/EBITDA is a leverage ratio comparing total debt to earnings before interest, taxes, depreciation, and amortization — showing how many years of operating earnings cover the debt load.

**Debt/EBITDA** measures financial leverage by dividing a company's total debt by its EBITDA — a proxy for cash earnings available to service obligations before capital expenditures.

### How it works

**Total debt** typically includes funded term loans, revolver draws, and sometimes capital leases. **EBITDA** adds back interest, taxes, depreciation, and amortization to operating income — though lenders often use **adjusted EBITDA** with add-backs for one-time costs (subject to negotiation).

A company with $50M net debt and $25M EBITDA runs at **2.0x** leverage. Buyout deals in stable software might land at 5–7x at close; industrial businesses often lower. Venture-stage companies with negative EBITDA are evaluated on revenue multiples or minimum liquidity instead.

Credit agreements set maximum Debt/EBITDA covenants tested quarterly. Breaches trigger cures, waivers, or default. Growth debt providers may use net debt/EBITDA once companies turn profitable.

Founders should know whether EBITDA adjustments in their term sheet are realistic — aggressive add-backs inflate headroom until diligence trims them.

### Why it matters

- **Founders:** Before signing venture debt or accepting a PE bid, model leverage through a downturn. A ratio that looks fine at peak EBITDA breaks if growth slows.
- **Investors:** LBO underwriting lives on entry and exit multiples of Debt/EBITDA. Small EBITDA misses magnify leverage and equity returns.

### Common mistake

Using management-adjusted EBITDA with unapproved add-backs when comparing to market covenant standards. Lenders recalculate under their own definitions.

### Related ideas

See also [debt pushdown](/glossary/debt-pushdown), [covenant](/glossary/covenant), interest coverage ratio, and net leverage.

## FAQ

### What is Debt/EBITDA in simple terms?

If a company has $300M debt and $100M EBITDA, Debt/EBITDA is 3.0x. Lower usually means less leverage; higher means more debt relative to cash earnings power.

### Why does Debt/EBITDA matter?

For founders taking growth debt or selling to PE, covenant packages often cap this ratio. For investors, it standardizes leverage comparisons across deals and sectors.


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Source: https://venturecapitaltracker.com/glossary/debt-ebitda