What net debt/EBITDA means

This rounds off the leverage posts with a ratio lenders and credit rating agencies commonly use: net debt/EBITDA — roughly, how many years of the company’s current operating profit would it take to pay off all its debt, if every rupee of EBITDA went straight to debt repayment?

Treat that “years” reading as a floor, not an estimate. EBITDA comes before interest, tax and capital spending, so the cash genuinely free to repay debt is smaller — the real payback would take longer.

Net debt nets a company’s borrowings against the cash and liquid investments it’s sitting on — because cash on hand could, in principle, be used to pay debt down immediately.

The formula

Net Debt = Total Borrowings − (Cash & Bank + Liquid Investments)
Net Debt / EBITDA = Net Debt / EBITDA

Worked example: Desi Bites Foods, FY25

  ₹ Lakh
Term Loan 400
− Cash 280
Net Debt 120
EBITDA 441
Net Debt / EBITDA 0.27x

Worked example: Britannia Industries, FY25

From Britannia Industries’ audited consolidated FY25 results (year ended 31 March 2025, filed 8 May 2025). Cash here includes both cash & bank balances and current investments (treasury holdings classified as current assets), since both could realistically be used to pay down debt. For illustration only.

  ₹ Crore
Total Borrowings 1,224.77
− (Cash & Bank + Current Investments) 1,424.12
Net Debt −199.35
EBITDA 3,187.15
Net Debt / EBITDA −0.06x

Britannia’s net debt is negative — it holds more cash and liquid investments than it owes in borrowings. It’s in a net cash position, not a net debt one — so read the negative ratio as “no net debt”, not as a negative number of years. That rounds off what the last few posts have shown for Britannia: a current ratio and quick ratio that looked tight in isolation, a low debt-to-equity, an equity multiplier explained by supplier financing rather than borrowing, comfortable interest coverage — and now, a balance sheet with more cash than debt on it. None of these ratios told the whole story alone; read together, they tell a much fuller one.

Common mistakes

  • Misreading negative net debt (net cash) as automatically wasted capital. It can mean a company is sitting on cash it should be deploying — or it can mean genuine financial strength and optionality. Worth asking why, not assuming either answer.
  • Using different “cash” definitions without checking. Some sources use cash & equivalents only; this post also includes liquid current investments, since Britannia holds meaningful treasury balances there — always check which definition a given number is using before comparing across sources.
  • Using a single year’s EBITDA in a cyclical downturn. EBITDA can swing faster than debt levels — a company’s net debt/EBITDA can look artificially high or low in an unusual year, even if its debt itself hasn’t changed much.
  • Ignoring debt maturity. A low net debt/EBITDA doesn’t tell you when the debt is actually due — a company could have a small, low ratio but a large single repayment due next year, which is still a real liquidity question this ratio doesn’t answer.

Takeaway: net debt/EBITDA roughly measures how many years of operating profit it would take to clear a company’s debt after netting off its cash. Like every leverage ratio, it’s most useful read alongside the others, not on its own.