Work out leverage ratio instantly with clear inputs, formula shown and shareable results.
Lenders test leverage two ways: debt to EBITDA, a stock measure of how many years of earnings the debt represents, and interest cover, a flow measure of whether earnings comfortably service it. Most mid-market covenants sit around 3.0-3.5x leverage with cover above 3.0x.
Leverage
Debt / EBITDA = Total debt / EBITDA
Interest cover
Cover = EBITDA / Interest expense
Interest cover in the short run, because it is about paying the coupon. Leverage matters at refinancing, when the whole balance has to be rolled.
Facility agreements define adjusted EBITDA precisely. Use that definition for covenant testing, not the statutory figure.