Leverage = Net financial debt ÷ EBITDA; also Debt ÷ Equity
Leverage is the use of debt to finance a company's activity or investments, so that its own capital works with borrowed resources. It is measured by comparing debt with the capacity to generate result (EBITDA) or with equity.
How it is calculated
Leverage = Net financial debt ÷ EBITDA, where net debt = financial debt − cash. Alternative: Financial debt ÷ Equity. A net debt to EBITDA ratio above 3 is usually considered high; banks set it as a covenant.
Example with numbers
Financial debt 1,500,000, cash 300,000: net debt 1,200,000. Last-twelve-month EBITDA 400,000. Leverage: 3.0x. If next year's EBITDA rises to 500,000 with the same debt, it falls to 2.4x; if it drops to 300,000, it rises to 4.0x and a 3.5x covenant is breached.
How Fibady does it
Debt and cash come from each entity's consolidated balance sheet and EBITDA from the group P&L, so the ratio is calculated per entity, subgroup and consolidated every month. Credit lines and loans from the financing module are included in debt with their maturities.