Debt payback period
What is the debt payback period, and how is it calculated?
ONE OF 416 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
The debt payback period is the number of years a business would take to repay all its debt if it applied its free cash flow, often taken after tax, interest, working capital and maintenance capex, wholly to repayment. A company with debt of US$24m and free cash flow of US$4m a year has a payback of six years, which a lender can set against the loan's tenor and the life of the assets financed. Because those costs come out first it is usually longer than debt to EBITDA, and it assumes no dividends, so a payback longer than the term points to a refinancing the plan relies on.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// THE FULL PAGE
Debt Payback Period: a Worked Example →
Count the debt in years of spare cash, and set it against the term.
// WHAT IT IS NOT
Debt to EBITDA divides debt by earnings before interest, tax and investment; the payback period divides it by the cash left after them, so it is usually the longer number.
// WORKED IN
// NEXT TO IT
- Cash conversion cycle
- Quality of earnings
- Debtor days
- Debt service cover ratio (DSCR)
- Interest cover ratio
- Debt to EBITDA (leverage)
- Dividend payout ratio
- Debt per kgMS
- Fixed charge cover ratio (FCCR)
- Global cash flow
- Adjusted EBITDA
- Creditor days (DPO)
- Inventory days (DIO)
- Maintenance capex
- Gearing
- Tangible net worth
- Downside case
- Breakeven milk price
- Debt-like items
- Operating leverage
- EBITDAR
- First-lien leverage
- Cash conversion (ratio)
- Order book cover
- Farm working expenses (FWE)
- Cost of production (dairy)
- Advance rate schedule (dairy)
- Liquidity headroom
- Normalised working capital (working capital peg)
- Owner drawings
- Net debt (covenant definition)
- Cash netting cap
- LTM EBITDA (last twelve months)
- Run-rate EBITDA
- Pro forma EBITDA
- Add-back cap
- Cash flow available for debt service (CFADS)
- Loan life cover ratio (LLCR)
- FFO to debt
- EBITDAaL (EBITDA after leases)
- Free cash flow (lender's definition)
- Retained cash flow (RCF) to net debt
- Cash taxes (tax paid)
- Exceptional items (non-recurring items)
- Owner remuneration normalisation
- Capex-to-depreciation ratio
- Growth capex (expansion capex)
- Contribution margin
- Price-volume-mix analysis (PVM)
- Debt capacity
- Breakeven interest rate
- Current ratio
- Quick ratio (acid test)
- Overtrading
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