For those with corporate banking expertise, how do you typically go about calculating debt capacity for a company?

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An easy way to size debt is to figure out a healthy debt coverage ratio (e.g. 1.35x) using cash flow proxy like EBITDA, and then back into appropriate debt figure based on that ratio.

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Agree with A1 on the Debt/EBITDA ratio and many of its variations depending on specific business/industry. Other ratios we look at are interest coverage and debt to equity/debt to cap. Learned from past conversation with credit shops that some folks focus on more advanced ratios like total debt repayment capacity (TDRC) and fixed cost coverage ratio (FCCR)

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Curious about this too because it seems everyone has their own way of doing it

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