Net debt to EBITDA ratio by industry

The net debt to EBITDA ratio is a financial metric that measures a company's debt level relative to its earnings. It is calculated by dividing a company's net debt (total debt less any cash or cash equivalents) by its EBITDA (earnings before interest, taxes, depreciation, and amortization).

The net debt to EBITDA ratio can vary significantly across different industries due to differences in the capital intensity and cash flow characteristics of each industry.

For example, industries that require high levels of capital expenditures, such as the telecommunications industry, may have higher net debt to EBITDA ratios than industries with lower capital expenditures, such as the software industry. Additionally, industries with higher levels of cyclicality and volatility may have higher net debt to EBITDA ratios due to fluctuations in earnings and cash flows.

It's important for investors and analysts to understand the average net debt to EBITDA ratio by industry in order to make informed investment decisions. By comparing a company's net debt to EBITDA ratio to the industry average, investors can gain a better understanding of whether the company's debt level is reasonable and sustainable given its earnings and cash flow characteristics.

Average net debt to ebitda ratio by industry

Here is a table showing average Net Debt to EBITDA by industry in the US as of Feb 2024:

Industry Average Net Debt to EBITDA Number of companies
Advertising Agencies 1.57 22
Aerospace & Defense 1.55 50
Agricultural Inputs 2.19 11
Airlines 3.34 13
Airports & Air Services 0.95 4
Apparel Manufacturing 2.33 17
Apparel Retail 2.72 29
Asset Management 3.41 73
Auto Manufacturers 0.52 17
Auto Parts 1.79 46
Auto & Truck Dealerships 2.84 14
Banks - Diversified -0.11 6
Banks - Regional 1.27 279
Beverages - Non-Alcoholic 0.37 9
Beverages - Wineries & Distilleries 1.54 9
Biotechnology 0.45 519
Broadcasting 2.74 16
Building Materials 1.33 7
Building Products & Equipment 1.1 31
Business Equipment & Supplies 2.92 7
Capital Markets 1.78 33
Chemicals 3 17
Coking Coal 0.28 4
Communication Equipment 0.12 53
Computer Hardware -0.04 28
Conglomerates 2.02 12
Consulting Services 1.34 16
Consumer Electronics 0.33 12
Credit Services 2.56 45
Department Stores 4.76 5
Diagnostics & Research 0.55 67
Discount Stores 2.12 9
Drug Manufacturers - General 2.13 12
Drug Manufacturers - Specialty & Generic 0.06 50
Education & Training Services 1.16 16
Electrical Equipment & Parts 0.43 42
Electronic Components 0.52 30
Electronic Gaming & Multimedia -0.08 7
Electronics & Computer Distribution 1.04 6
Engineering & Construction 1.61 30
Entertainment 3.09 37
Farm & Heavy Construction Machinery 1.23 22
Farm Products 0.2 18
Financial Data & Stock Exchanges 2.08 10
Food Distribution 4.05 9
Footwear & Accessories 1.48 11
Furnishings, Fixtures & Appliances 3.84 19
Gambling 1.5 12
Gold 0.58 27
Grocery Stores 2.71 10
Healthcare Plans 0.81 12
Health Information Services 0.13 33
Home Improvement Retail 0.89 7
Household & Personal Products 1.34 24
Industrial Distribution 1.64 17
Information Technology Services 1.09 54
Insurance Brokers 3.78 12
Insurance - Diversified 1.26 11
Insurance - Life 1.36 16
Insurance - Property & Casualty 0.19 36
Insurance - Reinsurance -1.28 7
Insurance - Specialty 1.23 16
Integrated Freight & Logistics 1.47 15
Internet Content & Information 0.87 36
Internet Retail 0.13 22
Leisure 1.85 25
Lodging 3.76 9
Luxury Goods 0.47 5
Marine Shipping 2.04 24
Medical Care Facilities 1.45 39
Medical Devices 0.38 104
Medical Distribution 1.2 7
Medical Instruments & Supplies 0.81 45
Metal Fabrication 2.09 13
Mortgage Finance 5.21 17
Oil & Gas Drilling 0.81 6
Oil & Gas E&P 1.02 65
Oil & Gas Equipment & Services 1.61 44
Oil & Gas Integrated 0.7 7
Oil & Gas Midstream 2.91 37
Oil & Gas Refining & Marketing 1.86 18
Other Industrial Metals & Mining 1.11 15
Other Precious Metals & Mining -0.2 12
Packaged Foods 2.01 42
Packaging & Containers 3.54 22
Personal Services 3.09 11
Pharmaceutical Retailers 0.12 8
Pollution & Treatment Controls 1.18 7
Publishing 3.84 7
Railroads 3.3 8
Real Estate - Development 2.44 10
Real Estate Services 2.44 24
Recreational Vehicles 1.84 15
REIT - Diversified 5.64 17
REIT - Healthcare Facilities 6.57 16
REIT - Hotel & Motel 5.61 15
REIT - Industrial 5.18 16
REIT - Mortgage 5 35
REIT - Office 8.42 24
REIT - Residential 5.49 19
REIT - Retail 5.6 21
REIT - Specialty 5.94 15
Rental & Leasing Services 3.66 20
Residential Construction 0.8 21
Resorts & Casinos 4.56 18
Restaurants 4.18 41
Scientific & Technical Instruments 1.09 24
Security & Protection Services 1.78 14
Semiconductor Equipment & Materials -0.05 26
Semiconductors 0.15 64
Software - Application 0.23 192
Software - Infrastructure 0.68 89
Solar -0.28 13
Specialty Business Services 2.51 26
Specialty Chemicals 1.6 46
Specialty Industrial Machinery 1.58 73
Specialty Retail 1.51 42
Staffing & Employment Services -0.25 23
Steel 0.51 15
Telecom Services 2.53 33
Thermal Coal -0.04 9
Tobacco 3.2 6
Tools & Accessories 2.31 11
Travel Services 2.72 14
Trucking 1.09 12
Utilities - Diversified 4.43 15
Utilities - Regulated Electric 5.25 25
Utilities - Regulated Gas 5.01 14
Utilities - Regulated Water 4.79 12
Utilities - Renewable 4.66 11
Waste Management 2.31 12

As shown in the table above, the REIT - Office industry has the highest average Net Debt to EBITDA ratio of 8.42, followed by REIT - Healthcare Facilities at 6.57. On the other hand, the Insurance - Reinsurance industry has the lowest average Net Debt to EBITDA ratio of -1.28, followed by the Solar industry at -0.28. These differences in the Net Debt to EBITDA Ratio highlight the importance of understanding industry-specific factors that affect a company's financial health and performance.

Industries with highest Net Debt to EBITDA ratio

Industries with the highest Net Debt to EBITDA ratio are indicated in the following chart and table. With the chart, you can group industries by sector and discover the highest Net Debt to EBITDA ratio in each category.

Industry Average Net Debt to EBITDA Number of companies
REIT - Office 8.42 24
REIT - Healthcare Facilities 6.57 16
REIT - Specialty 5.94 15
REIT - Diversified 5.64 17
REIT - Hotel & Motel 5.61 15
REIT - Retail 5.6 21
REIT - Residential 5.49 19
Utilities - Regulated Electric 5.25 25
Mortgage Finance 5.21 17
REIT - Industrial 5.18 16

Industries with lowest Net Debt to EBITDA ratio

Industries with the lowest Net Debt to EBITDA ratio are displayed in the chart and table below. You can further explore the industry ranking by Net Debt to EBITDA ratio for each sector in the chart.

Industry Average Net Debt to EBITDA Number of companies
Insurance - Reinsurance -1.28 7
Solar -0.28 13
Staffing & Employment Services -0.25 23
Other Precious Metals & Mining -0.2 12
Banks - Diversified -0.11 6
Electronic Gaming & Multimedia -0.08 7
Semiconductor Equipment & Materials -0.05 26
Computer Hardware -0.04 28
Thermal Coal -0.04 9
Drug Manufacturers - Specialty & Generic 0.06 50

Interpretation of the Net Debt to EBITDA Ratio

The net debt to EBITDA ratio is an important financial metric for investors and analysts because it can provide insight into a company's ability to pay off its debt. The net debt to EBITDA ratio can be interpreted in a number of ways. Generally speaking, a higher ratio indicates that a company has a higher level of debt relative to its earnings, which can be a cause for concern. A lower ratio, on the other hand, indicates that a company has a lower level of debt relative to its earnings, which can be a positive sign. However, it's important to keep in mind that the ratio can vary significantly across different industries.

Factors that Influence the Net Debt to EBITDA Ratio

The debt to EBITDA ratio is influenced by several factors, including the industry, business cycle, capital structure, mergers and acquisitions, cash flow, and interest rates. Industries with high capital expenditures may have higher ratios. Economic cycles and changes in interest rates can impact the ratio, while strong cash flows may enable companies to sustain higher ratios. Capital structure and mergers and acquisitions can also affect the ratio. Overall, it's important to consider these factors when evaluating a company's financial health.

Limitations of the Net Debt to EBITDA Ratio

While the net debt to EBITDA ratio is a useful financial metric, it's important to keep in mind that it has some limitations. For example, the ratio doesn't take into account the nuances of a company's financial situation, such as the maturity of its debt or the nature of its cash flows. Additionally, the ratio doesn't account for off-balance sheet financing, which can be an important factor in a company's financial health.

It can be distorted by accounting practices: The EBITDA component of the ratio is calculated based on accounting rules and can be subject to manipulation or distortion. For example, a company may use aggressive accounting practices to increase its reported EBITDA, which could artificially lower its net debt to EBITDA ratio.

While the net debt to EBITDA ratio can be a useful metric, it should not be used in isolation. It is important to consider a range of financial metrics when evaluating a company's financial health and making investment decisions.

As a result, it's important to use the ratio in conjunction with other financial metrics and to take a holistic view of a company's financial health.