FFO to debt

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

FFO to debt is funds from operations, broadly EBITDA less cash interest and tax, divided by total debt, which for this purpose usually includes leases and pension deficits. It is the cash-flow form of leverage that rating agencies use for larger corporate borrowers: the higher the percentage, the faster the business could in principle repay its debt from what it generates. A company with FFO of US$150m and adjusted debt of US$600m scores 25%. Bankers covering rated clients meet it in rating reports and in the client's own targets, and read it beside debt to EBITDA, since interest and tax come out of FFO first.

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.