Debt capacity
The most debt a business can service from its own cash flow without breaching covenants or starving operations.
Debt capacity in round numbers
Hypothetical: US$5m of annual earnings before interest, taxes, depreciation and amortization (EBITDA) multiplied by an assumed 4x leverage multiple gives US$20m of indicative debt. The business might carry that amount, but the multiplication does not independently establish its capacity to service it.
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| Measure | Value |
|---|---|
| Annual EBITDA | US$5m |
| Assumed leverage multiple | 4x |
| Indicative debt | US$5m × 4 = US$20m |
Terms Related to Debt capacity
The Van Horne Screen · Interest coverage · Covenant · Leverage · All of the glossary