Apple's debt-to-equity, live
AAPL — Debt/Equity. Open AAPL on the Ledge to see current values.
Three ways to measure a company's debt
| Ratio | Formula | What It Means |
|---|---|---|
| Debt/Equity | Total Debt / Equity | How much borrowed vs owned capital |
| Net Leverage | Net Debt / EBITDA | Years of earnings needed to repay debt |
| Interest Coverage | EBIT / Interest Expense | How easily earnings cover debt payments |
The net-leverage formula
Net Leverage = Net Debt / EBITDA
Typical debt levels vary by sector
Typical D/E ratios by sector (approximate)
Source: Illustrative ranges; sector D/E varies by index, cycle, and methodology.
Compare a utility's debt to a tech company's
Compare Debt/Equity for a utility company vs a tech company. Utilities typically use much more leverage.
How much debt is too much? It depends on cash flow
Same leverage, different risk: why the business matters
Net debt / EBITDA of 4.5x. For a regulated electric utility vs. a cyclical homebuilder — which case is more concerning?
Check your understanding
Sit with the ideas.
A company has $10B of total debt, $2B of cash, and $4B of annual EBITDA. What is its net leverage ratio?
Why: