Debt Capacity
Short definition
Debt capacity is the stock of debt — or the annual debt service — that can be carried given cash flow, tenor, collateral and covenants. It is not a single EBITDA multiple; lender appetite and cash-flow stability move the cap.
Detailed explanation
A practical sequence: build CFADS, divide by a target DSCR to get maximum annual service, then convert to a stock of debt with rate, tenor and amortisation. Bullet and amortising structures produce very different stocks at the same service. Net debt/EBITDA is a coarse screen; in inventory- and maintenance-heavy businesses CFADS binds before EBITDA.
Capacity also depends on collateral, the sector cycle, FX and rate shocks, and the equity cash buffer. There is no universal “3× EBITDA is safe” rule. Target DSCR and leverage are read from the contract and from lender policy.
Why it matters for the CFO
Capex, dividends and acquisitions must fit under this cap. Quoting capacity as an EBITDA multiple ignores tax, inventory and principal cash. The CFO asks not “how much can we draw?” but “which structure can we service, for how many years?”
How it is calculated
Güvenli yıllık borç servisi ≈ CFADS / Hedef DSCR; stok borç = f(servis, faiz, vade, amortisman)
Service cap first, stock of debt second. 1.50x is not a universal target DSCR; it is an example. The facility may set another minimum.
Variables in the formula
- Capacity: Serviceable debt service / stock of debt at a target DSCR
- CFADS: Cash flow available for debt service
- Target DSCR: Contract or policy minimum DSCR (varies by sector and lender)
How to read it
CFADS 170 mn TL and a 1.50x target DSCR imply maximum annual service = 170 / 1.50 ≈ 113 mn TL. That is not the stock of debt. At 40% interest and five-year equal principal, year-1 service is heavy, so the stock is lower than in an interest-only structure. Required DSCR varies with cash-flow stability, sector and the lender.
Numerical example
CFADS 170 mn TL, target DSCR 1.50x → max annual debt service = 170 / 1.50 = 113.3 mn TL. With 40% interest and five-year equal principal, year-1 service ≈ 60% of opening debt, so the stock ≈ 113.3 / 0.60 ≈ 189 mn TL (illustrative; tenor changes it).
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Definitions are educational. They are not investment, credit or tax advice.