What is the typical range of total debt to EBITDA ratios?

The typical range of total debt to EBITDA ratios is usually considered to be between 4.0x and 6.0x. This range indicates a balance where a company has a manageable level of debt relative to its earnings before interest, taxes, depreciation, and amortization.

A ratio within this range suggests that a company is not overly leveraged and is likely able to service its debt comfortably, making it more attractive to investors and lenders. Ratios at or below this level often signify a healthy financial status, as they imply that a company is generating sufficient earnings to cover its debt obligations without being overly restrained by debt payments.

In contrast, lower ratios, such as those around 1.0x to 3.0x, might indicate a company with minimal debt or strong profitability, while higher ratios, like those from 7.0x to 12.0x, can reflect more aggressive leverage, which could pose higher risk to stakeholders and might suggest potential difficulties in debt servicing under unfavorable conditions. Thus, the choice reflecting a range of 4.0x to 6.0x aligns with common financial metrics used to evaluate corporate debt levels in relation to earnings.