MB Capital Strategies Glossary — Updated June 2026
The Debt/EBITDA ratio (also written as Net Debt/EBITDA) tells you how many years a company would need — at its current earnings power — to pay off all its debt. It is the single most-watched leverage metric among lenders, analysts and equity investors in capital-intensive sectors like shipping, mining, pipelines and energy.
A ratio of 2.0x means the company could theoretically repay all net debt in two years from operating cash flow (before capex and taxes). A ratio of 5.0x means five years — and that is where lenders typically start getting uncomfortable.
| Sector | Comfortable Range | Warning Zone | Red Flag |
|---|---|---|---|
| Dry Bulk / Tanker Shipping | < 2.5x | 2.5x – 4.0x | > 4.0x |
| LNG / Gas Shipping | < 4.0x | 4.0x – 6.0x | > 6.0x |
| Mining (diversified) | < 1.5x | 1.5x – 3.0x | > 3.0x |
| Midstream / Pipeline | < 4.5x | 4.5x – 6.0x | > 6.0x |
| Upstream E&P | < 1.5x | 1.5x – 2.5x | > 2.5x |
Pipelines and LNG carriers can carry more debt than miners or tankers because their revenues are largely contractual — long-term take-or-pay agreements provide predictable EBITDA that lenders trust. Dry bulk and tanker shipping is the most cyclical, so lenders demand lower leverage.
Most shipping companies and miners operate variable-dividend policies tied to cash flow. A rising Debt/EBITDA ratio typically signals one of three things: rates have fallen (EBITDA shrinking), the company made a large acquisition (debt jumped), or both. In either case, the dividend is at risk before the balance sheet is repaired.
| Metric | Formula | Best Use |
|---|---|---|
| Net Debt/EBITDA | Net Debt ÷ EBITDA | Broad leverage check, most widely used |
| Interest Coverage | EBIT ÷ Interest Expense | Can the company service its debt today? |
| Debt/Equity | Total Debt ÷ Equity | Balance sheet structure, less relevant in asset-heavy sectors |
| Debt/Total Assets | Total Debt ÷ Total Assets | Asset coverage, useful for ship/mine valuations |
The ratio is almost never disclosed explicitly on the income statement. You build it from the balance sheet and income statement:
Many shipping and mining companies have bank loans with Debt/EBITDA covenants — e.g. "ratio must not exceed 4.5x at any quarter-end." A covenant breach triggers a technical default even if the company has not missed a payment. This is why monitoring this ratio quarterly matters: a breach forces renegotiation, often at higher interest rates, and frequently triggers a dividend suspension as the company tries to rapidly reduce debt.
Marco Bozem
Investor & Analyst | Hard Assets, Dividends, Shipping | MB Capital Strategies
Marco analyses commodity and dividend stocks with a focus on shipping, mining and energy. All analyses are based on publicly available annual reports and his own assessment. Not investment advice.