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Clear out junk files and repair common Windows errorsFree Scan →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →For a public company, low leverage generally means it uses relatively little debt compared with a stated financial measure, such as shareholders’ equity or earnings. There is no universal cutoff for “low”: the ratio’s formula and the company’s industry matter, so the number must be read in context.
What leverage measures
Leverage describes how much debt a company uses relative to another financial measure. The word alone does not identify a specific calculation. A debt-to-equity ratio and a debt-to-EBITDA ratio measure different relationships and are not interchangeable.
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Debt-to-equity
The U.S. Securities and Exchange Commission’s Beginners’ Guide to Financial Statements describes debt-to-equity as total liabilities divided by shareholders’ equity. A 2-to-1 ratio means the company has two dollars of liabilities for each dollar of shareholder equity. That illustrates how to read the ratio; it is not a high- or low-leverage threshold.
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Debt-to-EBITDA
Debt-to-EBITDA compares debt with EBITDA, a measure of earnings before interest, taxes, depreciation and amortization. Net debt-to-EBITDA instead deducts cash from debt before comparing it with EBITDA. Because the numerator can differ, these ratios can give different impressions of a company’s debt burden.
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Why “low” has no universal threshold
The SEC guide says, “As a general rule, desirable ratios vary by industry.” Companies in different industries and with different business models may have different capital needs and earnings patterns, so a ratio that appears low for one company may not be low for another. A useful judgment requires an appropriate peer group or comparison with the company’s own history—not an industry-independent cutoff.
Check how the company defines its ratio
Public companies may publish their own leverage measures in filings or investor presentations. Those calculations can include total debt or net debt, lease obligations, adjusted EBITDA and other company-specific adjustments. Issuer-defined measures may be non-GAAP and not comparable with similarly titled measures from other companies.
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For example, Murphy Oil’s September 2026 investor presentation defines leverage as total debt, including finance lease obligations, divided by adjusted EBITDA for the last twelve months attributable to Murphy. The company describes leverage and adjusted EBITDA as non-GAAP measures, says they may not be comparable to similarly titled measures used by other companies, and presents them as supplemental to the full financial statements. This is one issuer’s method, not a standard formula. See the Murphy Oil investor presentation.
Questions to ask before comparing ratios
- Does debt mean total debt or net debt after cash is deducted?
- Are lease obligations included?
- What earnings period does the EBITDA figure cover, and what adjustments were made?
- Is the comparison with the company’s earlier periods or with genuinely similar peers?
What a low ratio can—and cannot—tell you
All else equal, lower debt may mean less pressure to make debt payments or more room to borrow. But a leverage ratio by itself does not establish whether a company is financially strong or weak, or whether it can comfortably meet its obligations. Consider it alongside cash generation, profitability, debt maturities and terms, and other obligations. Murphy Oil also cautions that its leverage measure does not fully represent its ability to service debt.
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- Corporate Finance 13th Edition by Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor (Author), Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin. (Author), Jeffrey Jaffe , Bradford D Jordan Professor
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