Debt to EBITDA ratio and Debt to equity ratio: Difference between pages

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''Credit risk - liquidity - financial ratios - documentation. ''
''Financial ratio analysis.''


Debt to EBITDA is measure of an organisation's medium and longer term debt servicing capacity.
The debt equity ratio measures the relative of level of debt in a company's capital structure.


The lower the ratio, the greater the organisation's ability to service and repay its debt.
It is calculated as:


Therefore, the lower its credit risk.
''Debt '''÷''' equity''




The ratio is calculated by dividing the organisation's debt by its EBITDA.
Higher ratios indicate a relatively higher level of financial risk for the company.
 
Borrowing documentation may contain financial covenants, requiring the borrower to keep its debt to EBITDA ratio below the convenanted figure.
 
 
:<span style="color:#4B0082">''Covenant test''</span>
 
:G Group's net debt is EUR 350m and its EBITDA is EUR 100m.
 
:G Group's maximum covenanted net debt to EBITDA ratio is 3 times.
 
:Is G Group within its financial convenant?
 
 
:Net debt to EBITDA ratio
 
: = EUR 350m / EUR 100m
 
: = 3.5 times.
 
:This is greater than the covenanted maximum of 3 times.
 
:G Group is in breach of its covenant.




== See also ==
== See also ==
* [[Breach of covenant]]
* [[Cost of financial distress]]
* [[Condition]]
* [[Debt ratio]]
* [[Contract]]
* [[Gearing]]
* [[Covenant]]
* [[Credit risk]]
* [[Cross acceleration]]
* [[Default]]
* [[EBITDA]]
* [[Event of default]]
* [[Financial covenant]]
* [[Financial ratio]]
* [[Frozen GAAP]]
* [[Headroom]]
* [[Interest cover]]
* [[Interest rate risk]]
* [[Liquidity]]
* [[Loan agreement]]
* [[Loan to value]]
* [[Representations and warranties]]
* [[Risk]]
* [[Solvency]]
* [[Tangible net worth]]
* [[Translation risk]]
* [[Waiver]]
* [[Working capital]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:The_business_context]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]

Revision as of 19:37, 9 February 2019

Financial ratio analysis.

The debt equity ratio measures the relative of level of debt in a company's capital structure.

It is calculated as:

Debt ÷ equity


Higher ratios indicate a relatively higher level of financial risk for the company.


See also

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