gross leverage

A leverage metric that compares a company's total debt to its earnings (typically EBITDA) without subtracting cash.

Gross leverage is a financial metric that measures a company's total debt load relative to its cash flow generation, typically calculated by dividing total debt by EBITDA. Unlike net leverage, which subtracts cash and cash equivalents from the debt figure, gross leverage looks at the absolute debt burden. This provides a conservative view of a company's balance sheet strength, assuming that cash on hand might not be immediately available to pay down obligations. Investors, particularly credit analysts and bondholders, use gross leverage to evaluate a company's default risk and overall solvency. While a company might appear to have a manageable debt load on a net basis due to a large cash balance, that cash could be restricted, held in foreign jurisdictions with tax penalties on repatriation, or earmarked for capital expenditures. Gross leverage ensures that investors assess the raw debt obligations against operating profitability. Generally, a lower gross leverage ratio indicates a safer, more financially stable company, while a high ratio suggests elevated financial risk. What constitutes a "high" ratio varies significantly by industry; capital-intensive businesses with stable, recurring cash flows can comfortably support higher gross leverage than cyclical businesses with volatile earnings. A common pitfall for investors is relying solely on net leverage, which can mask liquidity risks if a company's cash reserves are rapidly depleted.

Company A has $500 million in total debt, $100 million in cash, and $80 million in EBITDA. Its gross leverage is calculated as $500 million / $80 million = 6.25x. For comparison, its net leverage would be ($500 million - $100 million) / $80 million = 5.00x.