Net Leverage
Net Debt (total debt minus cash) divided by EBITDA \u2014 the primary leverage metric in credit analysis and loan covenants. Below 2x is conservative, 2-4x is moderate, above 4x is heavily leveraged. Negative means net cash.
Formula
(Total Debt - Cash) / EBITDA = ({debt} - {cash}) / {ebitda}
Why it matters
This is the single most important metric in credit analysis. It determines a company's credit rating, the pricing on its loans and bonds, and whether it's in compliance with its debt covenants. Every leveraged finance professional thinks in terms of leverage turns.
How to read it
Below 2x = conservatively leveraged (investment grade territory). 3\u20134x = typical for a leveraged buyout or BB-rated company. 4\u20136x = highly leveraged (B-rated, higher default risk). Above 6x = very aggressive, often seen in stressed or distressed credits. Always compare to sector norms \u2014 a 4x cable company is fine, a 4x retailer is dangerous.
Lessons that use this term
Related terms
10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods
Open this term in the app → — no account needed; browse the full glossary while you research.