Leverage Ratio (Debt/EBITDA)

Total debt divided by EBITDA, used to measure how much borrowed capital is layered onto a company’s cash flow. Typical LBO entry leverage runs 4.5-6.0x EBITDA depending on the credit environment and sector.

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Why not just borrow more? Step leverage up and watch coverage fall, the rating decay and the spread widen until WACC bottoms out.

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Where Leverage Ratio (Debt/EBITDA) comes up

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