NFP/EBITDA ratio: how it is calculated and what it measures
26 October 2026, 09:43
The ratio between net financial position (NFP, PFN in Italian) and EBITDA shows how many years it would take, in theory, to clear net financial debt using only the margin from operations. The NFP is the difference between financial debts and financial assets: loans from banks and other lenders, minus the money in the accounts and the securities that can be sold at once. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is gross operating margin, that is, the result of operations before interest, taxes and depreciation.
The words "in theory" are there because EBITDA does not all go to reducing loans: interest, taxes and investments are paid first, and part of it stays tied up in receivables from customers and in inventory. The ratio measures the weight of the debt, not the real time it takes to repay it.
Both terms are taken from the annual financial statements
In the full balance sheet laid down by Article 2424 of the Italian Civil Code, loans sit on the liabilities side under items D4, "amounts owed to banks", and D5, "amounts owed to other lenders". Two items on the assets side are subtracted from the total: C.IV, "cash and cash equivalents", and C.III, "financial assets not held as fixed assets". The complete measure also includes instalment plans agreed with the Italian Revenue Agency and INPS (Italian social security): they are not loans, but they are repaid in instalments like a mortgage. The outstanding balance is shown in the instalment plans.
Abridged financial statements, allowed by Article 2435-bis of the Italian Civil Code for companies that for two consecutive years stay below two of three limits (€5.5 million in total assets, €11 million in revenue, 50 employees on average), show all debts on a single line, without separating banks from suppliers. The amounts are then taken from the trial balance, the list of accounts in the bookkeeping, or from the banks' documents: year-end balances and outstanding mortgage principal.
EBITDA is derived from the profit and loss account of Article 2425 of the Italian Civil Code. To the difference between the value and the costs of production are added depreciation, amortisation and write-downs (B10) and provisions (B12 and B13), which also appear in the abridged format.
The thresholds of 4 and 6 come from an ECB guide on loans to highly indebted companies
The result is read in bands: below 2 net debt is considered low, between 2 and 4 manageable, above 4 at risk, because refinancing maturing debt becomes harder, above 6 critical.
The European Central Bank's guidance on leveraged transactions, published in May 2017, applies to the banks under its direct supervision. It treats as leveraged a loan to a company whose debt, after the loan, exceeds 4 times EBITDA, and states that for most industries anything above 6 times raises concerns. That debt, however, is gross: it includes committed but undrawn facilities, and cash is not subtracted. And the guidance excludes loans to small and medium-sized enterprises, except those owned by private equity funds. For an SME those thresholds are a reference for reading the figure, not a supervisory rule; and the NFP, which subtracts cash, gives a lower ratio than one calculated as in the guidance.
The typical mistake is reading the result without looking at the two terms
The ratio only makes sense when there is net debt and EBITDA is positive. If operations are losing money and cash exceeds debts, dividing two negative numbers gives a positive result that looks excellent and measures nothing.
A high ratio does not say on its own whether the company can pay its instalments. Overdrafts and invoice advances are renewed rather than repaid: they weigh on the NFP, not on mortgage instalments. With a lot of short-term debt a company can have a high ratio and a good DSCR (Debt Service Coverage Ratio), the indicator that compares the year's resources with the interest and instalments due.
An example. A company that distributes frozen food to restaurants has a turnover of €28 million. At year end it has net financial debt of €6.3 million, almost all of it in invoice advances, and EBITDA of €1,400,000: the ratio is 4.5, above the threshold of 4. But there are few mortgage instalments and the DSCR is good: everything depends on the bank, which decides every year whether to confirm those advances.
In a company's own accounts the ratio is also followed during the year
The NFP in the financial statements is that of a single day, the end of the financial year. In companies with seasonal sales, debt in the peak months can be very different from year-end debt. With monthly controlling the ratio is calculated at the end of every month, with the NFP taken from bank statements and EBITDA over the last twelve months. When it rises, the question is which of the two terms is driving it: debt that is growing or margin that is shrinking.