What Is Funded Debt to EBITDA Ratio?
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.