WHAT IS DEBT TO EBITDA RATIO? (EASIEST EXPLANATION) Straight to the Point #STTP #290

In around two minutes you will know what is Debt to EBITDA Ratio. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.

Debt to EBITDA Ratio is a ratio that shows the ability of a company to cover its debt obligations before incurring interest, tax, depreciation, and amortization expenses.

And if you are not sure what EBITDA means, feel free to watch one of my previous videos.

The formula of Debt to EBITDA ratio is pretty self-explanatory. And it is total debt divided by EBITDA. Where total debt is the sum of short and long term debt.

EBITDA can be found on the Income Statement. While short and long term debt is located on the balance sheet.

But do not worry, some third-party websites, such as Yahoo! Finance, calculate the Debt to EBITDA Ratio for you.

Normally, you’d want to see Debt to EBITDA ratio as low as possible. It means that a company makes enough money to meet its obligations.

But high Debt to EBITDA ratio can signal that debt management is getting out of control. Especially if this ratio keeps going up every quarter.

This is one of the first signs that a company is struggling at covering its expenses. And, if left without proper attention, it can lead to the default and even bankruptcy.

The reason why this ratio uses EBITDA is the following. Different states and countries might have different interest rates and taxes. Therefore, identical companies might have different bottom lines, based on the location where they operate.

And EBITDA allows to bypass it. EBITDA shows how well a company produces earnings without taking into consideration various interest rates and taxes. Meaning, that investors can focus solely on the ability of a business to make money.

But do not rely solely on Debt to EBITDA ratio when analyzing a company as a potential investment. Take into consideration other factors and multipliers before making your final decision.

Also, different industries have different standards for debt levels. That is why you should always compare Debt to EBITDA of companies within the same industry.

If you find my content interesting, please consider subscribing to my channel. It helps a lot as a beginner creator. And let me know if there is anything you would like to know about personal finances and investing.

*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.

[TheRussianDude]

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[prathameshrathi]

wow... this video deserves many more views and definitely more likes! Love from India <3