Aquisition by Debt : What is Net Leverage Ration & Interest Coverage Ratio

A acquisition that is fully financed by Debt. 

Two Main Ratio in that is : 

1. Net Leverage Ratio 

It is a metric to measure the company's debt level by calculating and comparing "net debt" (i.e. total debt - Cash in Hand) to the EBITDA (Earning before Interest Tax Depreciation and Amortization)

= Net Debt / EBITDA

or we can say the level of indebtness of the company compared to the earning.

2. Interest Coverage Ratio 

It is a metric to measure the debt and profitibility of the company, how easily it is able to pay it's interest obligation on the outstanding debt. 

= EBIT / Net Interest Expense 

or we can say company's ability to pay it's interest payment

To get the Debt as full finance transactions for a deal we need to make the following outlines : 

  • Credit Related Strengths of the company 
  • Risk related for the Debt Financing Transaction 
  • And solution or mitigants for the risk listed down
A short Document for the same is as follows :


What we exactly did in this Document is that we Analyzed let's say option A to E and then we shortlisted Option C. 

After further analyzing Option C we need to understand that does Full Debt financing can happen or not ? For which we wrote the most suitable strengths. Then the risks and mitigation. 

How did we sorted out option C ?



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