What Is Funded Debt to EBITDA Ratio?
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The funded debt to EBITDA ratio is calculated by looking at the funded debt and dividing it by the earnings before interest, taxes, depreciation and amortization. Funded debt is long-term debt financed debt, such as bonds, that comes due in a longer time period than a year.
The ratio measures the company’s ability to pay off its long-term funded debt. A high ratio shows it takes longer for the company to pay off the funded debt; a lower rate conversely shows the company may take on more funded debt. A high ratio can lower a company’s credit rating. By looking at the funded debt only, the ratio looks at the long term, and may exclude short-term projects funded by debt.
