Imagine a soccer team where the players' skills on the field represent the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and the cost of running the team (like player salaries, stadium maintenance) represents the company's debt.

Debt: This is like the total expenses the soccer team incurs. It includes all the money the team owes or needs to pay, similar to how a company owes money on its debts.

EBITDA: This represents the team's core performance before any external factors come into play. It's like looking at how well the players are doing on the field before considering expenses like salaries and stadium costs.

Calculating the Ratio: To find the Debt/EBITDA Ratio, you divide the team's total debt by its EBITDA. For example, if a team has debts of $500,000 (costs for running the team) and an EBITDA of $250,000 (players' performance value), the Debt/EBITDA ratio would be 2 ($500,000 / $250,000).

This ratio tells you how many years it would take for the team to pay off its debt if EBITDA remains constant and all of it is used to repay the debt. A lower ratio indicates that the team can pay off its debt quickly, suggesting better financial health. A higher ratio might indicate the team is heavily reliant on debt and may struggle to pay it off, which could be risky.

In the business world, creditors and investors closely look at this ratio to assess a company's risk level. A high Debt/EBITDA ratio can indicate a company is over-leveraged and might face challenges in managing its debt, whereas a low ratio suggests the company is in a better position to handle its financial obligations.