Leverage

What it measures¶

Leverage is how much a company has borrowed compared with what its business earns. This check divides total debt — loans and bonds the company must repay, short-term and long-term — by EBITDA: earnings before interest, taxes, depreciation and amortisation, which is operating profit with the yearly write-down of equipment and acquired assets added back. The result reads as a number of years: debt of 3.0 times EBITDA would take about three years of that operating profit to repay, if all of it went to the lenders.

For a utility — an electricity, gas or water company — the check reads a different measure instead: operating cash flow before changes in working capital, divided by debt. Utilities carry far more debt by design, against steady regulated income, and the rating agencies judge them on that cash-flow measure.

Why it is on the page¶

It is the first figure the credit-rating agencies — S&P and Moody's, the two largest — look at when they judge whether a company can carry its debt. What is normal differs a great deal between industries, so it is a level check: the verdict compares the company with its sector first.

Thresholds, their source and the population they were fitted on¶

The check compares the figure with three lines: the sector median (the middle value of similar companies in the sector benchmark), the company's own five-year median, and the absolute line of 3.0 times. The verdict counted in the tile is the sector comparison; the own-history reading is shown beside it, and the evidence panel keeps all three.

S&P's standard table grades debt ÷ EBITDA as minimal below 1.5, modest 1.5 to 2, intermediate 2 to 3, significant 3 to 4, aggressive 4 to 5 and highly leveraged above 5. The absolute line, 3.0, is the top of "intermediate".

• Source: S&P Global Ratings, corporate methodology (the standard-volatility table); for utilities, Moody's regulated electric and gas utilities methodology, whose Baa band — the lowest grade of the agencies' "investment grade" — runs from 13% to 22%.
• Fitted on: no statistical sample — the agencies' published grids, calibrated on the companies they rate.
• Evidence grade: practitioner convention.
• Basis: sector band, with own history beside it.

A worked example¶

Honeywell International, fiscal year 2025 (statements stored on 25 October 2026): debt was 3.01 times EBITDA — just above the absolute line of 3.0 and above its own five-year median of 2.58. No sector benchmark was stored, so the check read not evaluable — no sector benchmark; the evidence panel still shows the own-history and absolute states.

Apple, the same year: 0.68 times, below its own five-year median of 0.84 — waiting for a sector benchmark too.

What “No verdict” means here¶

The check is not evaluable while no sector benchmark is stored for the company's group, or when the total debt or the figures that make up EBITDA are not stored; the missing input is named and the check leaves the area's count. A company with no debt is a different case: the ratio is not applicable — there is nothing to repay — and it is not counted as missing data.

What the verdict is and is not¶

A pass says the debt was no heavier, against operating profit, than is typical for the sector in the latest year. It is not a credit rating, not a forecast of default, and not an instruction to trade the shares. EBITDA leaves out the cost of replacing equipment, so a company with heavy capital needs can look lighter on this measure than it is.