How is a 4.0x debt/EBITDA ratio interpreted?

A debt/EBITDA ratio of 4.0x indicates that the company has a total amount of debt that is four times greater than its earnings before interest, taxes, depreciation, and amortization (EBITDA). This measurement typically assesses how leveraged a company is, providing insight into its ability to pay off its debt.

The interpretation that the firm has "4 turns of debt to pay off" accurately reflects the notion that for every dollar of EBITDA, the firm has four dollars of debt. This does not imply a simple time frame but rather a numerical relationship between debt and earnings. It suggests that if the company were to use all of its EBITDA solely for debt repayment, it would take approximately four years of current EBITDA levels to eliminate its debt, assuming no other financial factors intervene.

The other interpretations offered do not accurately reflect the meaning of a 4.0x debt/EBITDA ratio. It doesn't suggest that the company is necessarily under-leveraged or provide a direct valuation of its assets compared to earnings or liabilities in terms of years. Overall, understanding this ratio enables stakeholders to gauge the financial leverage and risk associated with a firm's capital structure.