Gross Debt-to-EBITDA Ratio: Definition and Example

The gross debt-to-EBITDA ratio measures a company’s total debt relative to its EBITDA.

Lenders and credit analysts use it as a quick leverage indicator to judge how heavily indebted a company is relative to its cash-earnings capacity.

How It Works

A simple version is:

gross debt-to-EBITDA ratio = total debt / EBITDA

The word gross matters because cash is not netted against debt in this measure. That is what distinguishes it from net debt-to-EBITDA ratio.

Worked Example

Suppose a company has:

• total debt: $900 million
• EBITDA: $180 million

Its gross debt-to-EBITDA ratio is 5.0.

That means gross debt equals about five years of EBITDA, ignoring taxes, interest, and capital spending.

Scenario Question

A manager says, “If we have a lot of cash, our gross debt-to-EBITDA ratio will look low.”

Answer: No. Gross debt measures total debt before subtracting cash. Large cash balances help net leverage, not gross leverage.

Related Terms

• Debt-to-EBITDA Ratio: A broad leverage measure based on debt relative to EBITDA.
• Net Debt-to-EBITDA Ratio: Nets cash against debt before calculating leverage.
• EBITDA: EBITDA is the denominator in this leverage ratio.
• Interest Coverage Ratio: Coverage ratios complement leverage ratios by focusing on payment capacity.
• Debt Ratio: Another way to think about leverage using assets instead of EBITDA.

FAQs