What net debt/EBITDA means

This closes out the Leverage module with the ratio lenders and credit rating agencies reach for first: 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?

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 1224.77
− Cash & Bank + Current Investments 1424.12
Net Debt -199.35
EBITDA 3187.15
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 genuine net cash position, not a net debt one. That closes the loop on everything this module has shown: 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; together, they do.

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 measures how many years of operating profit it would take to clear a company’s debt after netting off its cash — and, as this whole module’s walk through Britannia shows, no single leverage ratio tells the full story on its own; it’s the combination that does.