Debt & solvency
What it measures¶
This area asks whether the company's debts could become a danger to it. Debt is money borrowed that must be repaid with interest; solvency is the ability to keep meeting those payments over the years. The area runs five checks:
| Check | The question | Basis |
|---|---|---|
| Leverage | How many years of operating profit before depreciation would the debt take to repay? 3 or fewer passes. | sector band |
| Coverage | How many times does that operating profit cover the year's interest? 4 or more passes. | sector band |
| Leverage not rising | Did debt, as a share of assets, stay level or fall? | own history |
| Altman zone | Is the Altman Z-score, a published distress screen, in its safe zone? | absolute |
| Debt issuance | Did the company avoid adding to its debt, net, over three years? | own history |
Why it is on the page¶
Debt makes good years better and bad years worse: interest must be paid whether or not the business earned it, and a lender can force a sale or a restructuring when it is not. Rating agencies, whose business is judging exactly this, grade companies first on how large the debt is against operating profit and how comfortably that profit covers the interest — which is what the first two checks measure.
Thresholds, their source and the population they were fitted on¶
EBITDA is earnings before interest, taxes, depreciation and amortisation — operating profit with the yearly write-down of equipment and acquired assets added back. It is the agencies' usual measure of what a business could put towards its debt. S&P and Moody's are the two largest credit-rating agencies.
| Check | Line | Source and fitted population | Evidence grade |
|---|---|---|---|
| Leverage | debt ÷ EBITDA 3.0 or less; a utility: operating cash flow ÷ debt 13% or more | S&P's "intermediate" financial-risk level; Moody's regulated-utility grid at its Baa level | practitioner convention |
| Coverage | EBITDA ÷ interest 4.0 or more | Moody's 2023 ladder, the Ba floor; S&P shows about 6 to 10 times as "intermediate" | practitioner convention |
| Leverage not rising | the ratio did not rise | Piotroski (2000): US companies priced low against the equity on their balance sheet, 1976–1996 | peer-reviewed and replicated |
| Altman zone | Z above 2.99 (Z″ above 2.60 for companies that are not manufacturers) | Altman (1968): 66 US manufacturers; the Z″ form for non-manufacturers | peer-reviewed and replicated |
| Debt issuance | net debt issued over three years 0 or less | Asness, Frazzini and Pedersen: 24 countries, 1951–2012 | peer-reviewed and replicated |
The cap. An Altman score in the distress zone keeps the band's overall word at Mixed at most, whatever the average (see the cap).
Utilities. For a company the rules classify as a utility, Leverage reads Moody's utility measure — operating cash flow before working-capital changes, divided by debt, at least 13% — because utilities carry far more debt by design.
A worked example¶
Honeywell International, fiscal year 2025, on the statements stored on 25 October 2026:
- Leverage — not evaluable. Debt was 3.01 times the year's EBITDA: just above the absolute line of 3.0 and above the company's own five-year median of 2.58, but with no sector benchmark stored, the sector-band state cannot be judged.
- Coverage — not evaluable. No interest expense is stored for fiscal 2025.
- Leverage not rising — passed. Debt fell by 0.6 percentage points of average assets.
- Altman zone — failed. Z of 2.66 sits in the grey zone between 1.81 and 2.99: not distress, not safe.
- Debt issuance — failed. Total debt was 9,117 million US dollars higher than three years earlier.
Three checks could run and one passed: 1 of 3 checks passed · 33% · Weak ✕, with the reason Altman zone (2.66) misses Z > 2.99, absolute. In the four earlier years only two checks could run, so their history marks are hollow.
What “No verdict” means here¶
The tile shows No verdict when fewer than three checks could run. Two of the five need a sector benchmark, so a company whose group has no stored benchmark and that lacks one more input — an interest expense, a total-debt line — reaches only two. A company with no debt is a different case: the debt ratios are not applicable to it, which is a fact about the company, not missing data, and the tile can still reach three checks through the others.
Debt & solvency is a core area: without a verdict here, the overall figure is withheld.
What the verdict is and is not¶
The verdict counts how many of these published solvency lines the latest statements met. Weak says most checks that could run were missed; it is not a forecast of default, and Strong is not a promise that none will happen. The lines were fitted on particular groups of companies and misclassify some even there. It is not an instruction to trade the shares.