Net Debt-to-EBITDA

Net debt-to-EBITDA measures how many years of earnings it would take a company to pay off its debt, after crediting it for the cash it already holds. Below 1.0 is low leverage, between 1.0 and 3.0 is moderate, and above 4.0 is high.

Net debt-to-EBITDA refines the standard debt-to-EBITDA ratio by subtracting cash and cash equivalents from total debt before dividing by EBITDA. This gives credit to companies that hold significant cash reserves, producing a more realistic picture of their effective leverage.

A company with $10B in total debt and $6B in cash has $4B in net debt — a fundamentally different risk profile than a company with $10B in debt and $500M in cash. The net debt-to-EBITDA ratio captures this difference while the standard debt-to-EBITDA ratio does not.

A negative net debt-to-EBITDA ratio means the company has more cash than debt — it is in a net cash position. Companies like Alphabet, Meta, and many large technology firms frequently have negative net debt. This is generally a sign of financial strength, though persistently holding excess cash can also signal a lack of productive investment opportunities.

The benchmark tiers are a starting point, not a verdict. Above 5.0 a company generally depends on continued refinancing access rather than its own earnings to service the obligation. But a regulated utility at 4.5 with contracted revenue is a different proposition than a cyclical manufacturer at the same ratio heading into a downturn, and the ratio alone does not distinguish them. Stability of the denominator matters as much as the size of the numerator: leverage against volatile EBITDA is riskier at every tier than the same leverage against a contracted revenue stream. The trend also outranks the level — a company moving from 4.2 to 3.1 across three years is deleveraging under its own power, while a company sitting flat at 3.1 for the same three years is doing something different, and the two look identical in a single-period screen.

Net Debt-to-EBITDA = (Total Debt − Cash and Cash Equivalents) / EBITDA (TTM)

A good net debt-to-EBITDA ratio depends on the sector, and most companies run far below the 3x figure often quoted as a universal limit. Across 4,100 non-financial US companies, the median net debt-to-EBITDA is 0.34x and the middle half fall between -0.41x and 2.18x. Utilities, transportation, and communications companies run a median of 2.32x, roughly six times the median manufacturer.

Regulated utilities sit at the top because rate-based, contracted revenue lets them service far more debt per dollar of EBITDA than a cyclical business could. PG&E runs 12.24x and American Electric Power 9.41x without being in distress. At the other end, companies with more cash than debt have negative ratios: GameStop's is -8.40x and Airbnb's -6.05x. Compare a company with its own sector's row, not with a single threshold. A manufacturer at 2x carries more leverage than most of its peers; a utility at 2x is running lean.

Figures are GeminIQ calculations as of September 2026, using each company's latest trailing-twelve-month filing within the prior fifteen months. Banks and insurers are excluded because leverage is part of their business model. Sectors are SIC divisions, the top and bottom 1% of each sector are trimmed, and the middle 50% runs from the 25th to the 75th percentile. Construction, wholesale trade, and agriculture have fewer than 200 companies, so treat their medians as directional.

GeminIQ computes net debt by subtracting Cash and Cash Equivalents from Total Debt (using the as-filed balance sheet values), then divides by trailing twelve-month EBITDA. All inputs come directly from the company's SEC filings via their XBRL tags.

One convention is applied across every company in the database: total debt as filed including lease obligations, cash and cash equivalents as filed without investment securities, and trailing twelve-month EBITDA. The resulting figure will not match every other platform. It will mean the same thing for every company in the universe, which is the property that makes a leverage screen worth running at all.

The ratio rests on an assumption it never states: that the cash on the balance sheet could actually be applied to the debt. Three situations break that assumption. Banks and regulated financial institutions hold large cash balances because regulators require it, so netting reserve cash against debt describes a transaction that is not legally permitted. Companies mid-acquisition hold cash earmarked for a deal announced but not closed, and the net debt figure will jump the quarter the transaction settles — not because leverage changed, but because the cash left. Companies with significant international operations may hold cash in subsidiaries where repatriation carries a tax cost or legal restriction. In all three cases the gross debt-to-EBITDA ratio is the more conservative and more honest read, which is one reason lenders write covenants against the gross figure.