# Leverage

> Leverage is the use of debt to finance a company's activity or investments. It is measured by comparing debt with EBITDA or with equity.

Updated: 2026-09-03 · Author: Santiago Viglione (Fibady) · https://www.fibady.com/en/glossary/leverage

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.

## Frequently asked questions

### Is financial leverage the same as operating leverage?

No. Financial leverage measures debt; operating leverage, the weight of fixed costs over variable ones. Both amplify the result, for better and for worse.

### How often is it calculated?

Monthly in management reporting, and at every quarterly close if there are bank covenants setting a maximum debt to EBITDA.

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