What is a good financial leverage ratio?

It depends on which ratio. Net debt to EBITDA below 2x is generally considered conservative for an industrial company and below 3x acceptable; debt to equity and the equity multiplier have no universal benchmark because they depend on buyback policy and asset intensity.

Is the financial leverage ratio the same as debt to equity?

No. Debt to equity is one of several leverage ratios; the equity multiplier (total assets / equity) is the formula most textbooks mean by "financial leverage ratio", and net debt to EBITDA is what lenders mean.

Why does Apple have a high debt to equity ratio?

Because share repurchases have reduced its equity to 56,950 against 106,629 of debt. Its net debt is close to zero once marketable securities are counted.

Should marketable securities count as cash in net debt?

Only if they are liquid and unrestricted, and the choice must be stated and applied the same way to every company being compared. On Apple it moves net debt to EBITDA from 0.57x to negative 0.37x.

Does the equity multiplier include debt?

Indirectly: total assets equal liabilities plus equity, so a higher multiplier means more of the assets are funded by liabilities of any kind, not just interest-bearing debt.

← From the desk

Financial ratiosWorked example

Financial Leverage Ratio: Four Formulas, One Company, Four Answers

The financial leverage ratio, four ways: debt to equity, debt to capital, the equity multiplier and net debt to EBITDA, from Apple's FY2024 10-K.

The PitchFit Team

Oct 22, 20267 min read

"Financial leverage ratio" is not one ratio. It is at least four, they measure different things, and Apple's FY2024 accounts show a company that is heavily leveraged on one of them and has no net debt at all on another. Before you compare any leverage figure across companies, ask which formula it is and how debt, cash and EBITDA were defined.

All figures below are from Apple Inc.'s Form 10-K for the fiscal year ended 28 September 2024, in millions of US dollars, as labeled in the filing.

Summary

Apple's debt to equity is 1.87x, its equity multiplier 6.41x, and its net debt to EBITDA somewhere between 0.57x and negative 0.37x depending on what counts as cash. The balance-sheet ratios are high because three years of buybacks have shrunk equity, not because the company is risky. For capital structure use debt to capital; for return decomposition use the equity multiplier; for credit use net debt to EBITDA with every input defined in writing. Debt to equity is the most quoted and, on Apple, the least informative.

Terms in this articleIn plain words

Financial leverage ratio: Any ratio that shows how much of a company is funded by borrowing. This article computes four.
Debt: Money borrowed that has to be paid back. Here: term debt and commercial paper.
Commercial paper: Short-term borrowing, usually repaid within months.
Shareholders' equity: What belongs to the owners: everything the company owns minus everything it owes. Buybacks reduce it.
Total assets: Everything the company owns, from cash to factories.
EBITDA: Operating income with depreciation and amortization added back: a rough measure of a year's cash from operations.
Net debt: Debt minus cash. Below zero, the company holds more cash than it owes.
Buyback: A company using its cash to buy its own shares back from investors.
Marketable securities: Investments, such as bonds, that can be sold quickly for cash.

What is the financial leverage ratio formula?

ResultEach formula divides one figure from the filing by another. Which two it uses decides the question it answers.

Debt to equity

= Total debt / Shareholders' equity.

How much of the capital structure is borrowed relative to what owners have put in or retained.

Debt to capital

= Total debt / (Total debt + Shareholders' equity).

What share of long-term funding is debt. Bounded between 0 and 1 while equity is positive.

Equity multiplier

= Total assets / Shareholders' equity.

How many units of assets each unit of equity supports. This is the leverage term in the DuPont decomposition of return on equity.

Net debt to EBITDA

= (Total debt minus cash) / EBITDA.

How many years of operating cash earnings it would take to repay net borrowings. This is the one lenders, rating agencies and covenants mean by leverage.

Apple's inputs, FY2024

ResultTwelve lines from Apple's 10-K. The four answers below are computed from them.


Line item (as filed)	USD millions
Term debt, current	10,912
Term debt, non-current	85,750
Commercial paper	9,967
Total debt	106,629
Cash and cash equivalents	29,943
Marketable securities, current	35,228
Marketable securities, non-current	91,479
Total shareholders' equity	56,950
Total assets	364,980
Operating income	123,216
Depreciation and amortization	11,445
EBITDA (operating income plus D&A)	134,661

The four answers

ResultThe same filing shows a company that looks heavily borrowed and one with no net debt at all.


Ratio	Calculation	Result	Reads as
Debt to equity	106,629 / 56,950	1.87x	Heavily leveraged for a technology company
Debt to capital	106,629 / (106,629 + 56,950)	0.65	Two thirds of capital is debt
Equity multiplier	364,980 / 56,950	6.41x	Assets are more than six times equity
Net debt to EBITDA, cash only	(106,629 minus 29,943) / 134,661	0.57x	Barely leveraged
Net debt to EBITDA, cash plus all marketable securities	(106,629 minus 156,650) / 134,661	negative 0.37x	Net cash; no leverage at all

Same company, same filing, same day. The balance-sheet ratios describe a company funded two thirds by debt with assets six times its equity. The cash-flow ratio describes a company that could repay every dollar it owes from seven months of EBITDA, or that has no net debt at all once its securities portfolio is counted.

Why do Apple's leverage ratios disagree?

ResultBuybacks made Apple's equity small, so the ratios that divide by equity come out large.

The balance-sheet ratios are high because Apple's equity is small, and equity is small because of share repurchases. From the cash flow statement: repurchases of common stock were 89,402 in FY2022, 77,550 in FY2023 and 94,949 in FY2024. Total shareholders' equity went from 63,090 at the start of FY2022 to 56,950 at the end of FY2024, while the company generated 118,254 of operating cash flow in FY2024 alone. Retained earnings are being returned to shareholders faster than they accumulate, so the equity denominator shrinks while assets and debt do not.

Debt to equity and the equity multiplier therefore measure Apple's capital allocation policy, not its financial risk. Net debt to EBITDA measures the risk, and it is close to zero.

A reader who compares Apple's 1.87x debt to equity with a peer that does not buy back shares is comparing policy, not solvency.

The three definitional choices, on Apple's numbers

ResultWhat you count as debt, cash and EBITDA changes the answer, for the same company on the same day.

What counts as debt. Term debt plus commercial paper gives 106,629. Exclude commercial paper, as some analysts do for a company with this much liquidity, and debt is 96,662, debt to equity 1.70x. Apple's lease liabilities (operating and finance leases, disclosed in the leases note) would add to debt under a rating agency's definition and move the ratios up again.

What counts as cash. Cash and equivalents alone are 29,943. Add current marketable securities and the figure is 65,171. Add non-current marketable securities and it is 156,650. Net debt to EBITDA moves from 0.57x to 0.31x to negative 0.37x on that choice alone. Three defensible answers to "is Apple net cash?" and only one of them says no.

What counts as EBITDA. Operating income plus D&A as filed gives 134,661. Apple reports no adjusted EBITDA, so there is no management measure to reconcile; for most companies there would be, and the adjusted figure would be higher.

Which leverage ratio should an analyst use?

ResultChoose the ratio by the question you are asking.

For capital-structure questions, how the company is funded and how that compares to peers:

debt to capital, because it is bounded and survives thin equity.

For return decomposition, why return on equity is high or low:

the equity multiplier, as part of DuPont. Apple's return on equity for FY2024 is 93,736 of net income over 56,950 of equity, 165%, and the 6.41x multiplier is most of the reason.

For credit and covenant questions, whether the company can service and repay what it owes:

net debt to EBITDA, with debt, cash and EBITDA defined in writing, beside interest coverage.

Debt to equity remains the most searched and the most quoted. On Apple it is also the least informative, because the denominator is a policy choice.

Why this matters for comparison

ResultRatios compare only when every company's debt, cash and EBITDA are defined the same way.

Across companies, all four ratios are comparable only when debt, cash and EBITDA are defined the same way for every company in the set, and filings do not do that for you. One company prints commercial paper inside short-term borrowings, another beside it; one holds its liquidity in cash, another in a securities portfolio two lines down; one reports adjusted EBITDA, another nothing. That is why PitchFit maps every statement to one canonical template before any ratio is computed: debt, cash and operating profit sit on the same lines for every company, every reclassification is an explicit bridge, and every ratio can be traced to the printed figure it came from.

The ratio is only as comparable as the lines beneath it.

Frequently asked questions

What is a good financial leverage ratio?
It depends on which ratio. Net debt to EBITDA below 2x is generally considered conservative for an industrial company and below 3x acceptable; debt to equity and the equity multiplier have no universal benchmark because they depend on buyback policy and asset intensity.
Is the financial leverage ratio the same as debt to equity?
No. Debt to equity is one of several leverage ratios; the equity multiplier (total assets / equity) is the formula most textbooks mean by "financial leverage ratio", and net debt to EBITDA is what lenders mean.
Why does Apple have a high debt to equity ratio?
Because share repurchases have reduced its equity to 56,950 against 106,629 of debt. Its net debt is close to zero once marketable securities are counted.
Should marketable securities count as cash in net debt?
Only if they are liquid and unrestricted, and the choice must be stated and applied the same way to every company being compared. On Apple it moves net debt to EBITDA from 0.57x to negative 0.37x.
Does the equity multiplier include debt?
Indirectly: total assets equal liabilities plus equity, so a higher multiplier means more of the assets are funded by liabilities of any kind, not just interest-bearing debt.

Source: Apple Inc. Form 10-K for the fiscal year ended September 28, 2024, consolidated balance sheet, statement of operations and statement of cash flows. Ratios computed from the filed figures as shown; definitions stated above.

Written by

The PitchFit Team

Notes from the team building PitchFit.

Keep readingAll articles →