Debt Capacity Model Template

Over 2 million + professionals use CFI to learn accounting, financial analysis, modeling and more. Unlock the essentials of corporate finance with our free resources and get an exclusive sneak peek at the first module of each course. Start Free

Debt Capacity Model Template

This Debt Capacity Model Template will help you assess the debt capacity based on various credit metrics and current earnings.

Here is a screenshot of the debt capacity model template:

Debt Capacity Model Template Screenshot

Download CFI’s Free Debt Capacity Model Template

Complete the form below to download our free Debt Capacity Model template!

What is Debt Capacity?

Debt capacity refers to the total amount of debt a business can incur and repay according to the terms of the debt agreement. A business takes on debt for several reasons, such as boosting production or marketing, expanding capacity, or acquiring new businesses. However, incurring too much debt or taking on the wrong kind can result in damaging consequences.

At the end of the day, lenders wish to seek comfort and confidence in lending their money to businesses that can internally generate enough earnings and cash flow to not only pay the interest, but also the principal balance.

Assessing Debt Capacity

The two main measures to assess a company’s debt capacity are its balance sheet and cash flow measures. By analyzing key metrics from the balance sheet and cash flow statements, investment bankers determine the amount of sustainable debt a company can handle in an M&A transaction.

Some important credit metrics to measure in assessing debt capacity:

1. Debt-to-Equity

Debt-to-equity ratios provide investment bankers with a high-level overview of a company’s capital structure.

2. Cash Flow Metrics

Another set of measures investment bankers use to assess debt capacity is cash flow metrics. These metrics include total debt to EBITDA, which can be broken down further to senior debt-to-EBITDA, cash interest coverage, and EBITDA-Capital Expenditures interest coverage.

3. Total Debt / EBITDA

The Debt-to-EBITDA measure is the most common cash flow metric to evaluate debt capacity. This ratio exhibits a company’s ability to pay off its incurred debt and provides investment bankers with information on the amount of time required to clear all debt, ignoring interest, taxes, depreciation, and amortization.

4. Cash Interest Coverage

The cash interest coverage measure depicts how many times the cash flow generated from business operations can service the interest expense on the debt.

5. EBITDA-CapEx Interest Coverage

By taking the EBITDA, deducting capital expenditures, and examining how many times this metric can cover the interest expense, investment bankers can assess a company’s debt capacity.

6. Fixed-Charge Coverage Ratio

The fixed-charge coverage ratio is equal to a company’s EBITDA – CapEx – cash taxes – distributions.

More Free Templates

For more resources, check out our business templates library to download numerous free Excel modeling, PowerPoint presentations, and Word document templates.

Additional Resources

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

Analyst Certification FMVA® Program

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

 

Financial Analyst certification curriculum

 

A well rounded financial analyst possesses all of the above skills!

 

Additional Questions & Answers

CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

In order to become a great financial analyst, here are some more questions and answers for you to discover:

 

Excel Tutorial

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

Launch CFI’s Excel Crash Course now to take your career to the next level and move up the ladder!

0 search results for ‘