Net Debt to EBITDA: Leverage Analysis

Same opening debt, same repayment, different cash source

Two independent synthetic FY 2026 cases start with cash of 1,000, PP&E of 5,000, long-term debt of 3,000 and equity of 3,000. Opening assets and funding both total 6,000. All amounts are EUR thousands; other opening balances and the revolver are zero. Both cases have revenue 10,000, COGS 6,000 and overhead 3,000, giving EBITDA and net income of 1,000.

Depreciation, capex, interest, tax and distributions are zero to isolate cash conversion. Both repay 1,000 of debt and close with debt of 2,000. In the cash-funded case, closing inventory rises from zero to 1,000; receivables and payables stay zero. In the operating-funded case, all three balances remain zero.

Gross debt vs net debt / EBITDA

Gross debt here is modeled long-term debt plus the revolver. Net debt subtracts cash from that total. BalanceCheat’s leverage metric divides net debt by positive EBITDA for the selected period. It does not annualize the numerator or replace EBITDA with cash flow.

Opening net debt is 3,000 − 1,000 = 2,000 in both cases. In the cash-funded case, EBITDA of 1,000 is entirely absorbed by the stock build: CFO = 1,000 − 1,000 = 0. Repayment then uses the existing 1,000 cash. Closing net debt is 2,000 − 0 = 2,000, and leverage is 2.00x.

In the operating-funded case, CFO is 1,000. Repayment uses that cash generation, leaving opening cash of 1,000 intact. Closing net debt is 2,000 − 1,000 = 1,000, and leverage is 1.00x. Gross debt falls by the same amount in both cases; only the second reduces net debt.

Why weak or negative EBITDA changes the interpretation

Holding those closing balances fixed, EBITDA of only 100 would produce 20.00x and 10.00x. This is denominator sensitivity, not evidence that debt suddenly increased. Ask whether the earnings period is representative and whether cash generation supports the numerator.

With zero or negative EBITDA, the implemented metric is unavailable and displays a dash: the engine only divides by a positive denominator. A negative algebraic multiple would not be a useful repayment measure. For monthly or quarterly models, EBITDA is the selected period’s amount, so a multiple is not directly comparable with an annual one.

Cash may be restricted or needed for operations. This exercise assumes all cash can be subtracted and contains no cash restriction, covenant test, credit rating or financing-availability determination. The EBITDA page covers the earnings measure itself.

Reproduce the two independent cases

Create a blank annual EUR model in thousands with zero actual years and one forecast year, starting in 2026. In Advanced mode enter the opening balances, revenue, cost amounts and closing debt above. Set gross margin to 40%, taxes and interest to zero, and all other movements to zero.

First set closing inventory to 1,000 and read CFO, debt repayment, cash and net debt / EBITDA. Then change only inventory to zero and compare the results. This is a comparison of two alternatives, not two consecutive years. The model link does not preload either case.

Keep schedules and valuation questions separate

The Debt Model builds the loan and interest plan; this page interprets its cash and leverage effects. Enterprise Value vs Equity Value explains the valuation bridge involving debt and cash, which is a different question. Use Financial Ratio Analysis to read leverage with liquidity and returns.