Low leverage generally means a public company uses relatively little debt compared with equity, earnings, or another stated financial measure. It is a comparison, not a universal rating: the ratio chosen, the company’s industry, and the definitions in its filings all matter.
What a leverage ratio measures
Leverage describes debt in relation to another financial measure. The ratio must be named to know what is being compared:
- Debt-to-equity: compares liabilities with shareholders’ equity. The SEC’s Beginners’ Guide to Financial Statements defines it as total liabilities divided by shareholders’ equity. Its example of a 2-to-1 ratio means two dollars of liabilities for each dollar of equity; that example explains the arithmetic, not a high- or low-leverage cutoff.
- Debt-to-EBITDA or net debt-to-EBITDA: compares debt—or debt after subtracting cash—with an earnings measure. Whether cash is deducted and how EBITDA is calculated depend on the stated formula.
These ratios use different denominators and definitions, so they are not interchangeable.
Why “low” has no universal cutoff
There is no single numerical threshold that makes every public company low-leverage. The SEC guide notes: “As a general rule, desirable ratios vary by industry.” Companies with different business models and financial characteristics cannot be judged reliably by one industry-independent benchmark.
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For an individual company, “low” is meaningful only in relation to a clearly identified measure and a suitable comparison, such as the company’s own earlier periods or genuinely similar peers.
Check how the company defines its measure
A company’s filing or investor presentation may define leverage differently from another issuer’s. For example, Murphy Oil’s September 2026 investor presentation defines leverage as total debt, including finance lease obligations, divided by adjusted EBITDA for the last twelve months attributable to Murphy. The presentation describes leverage and adjusted EBITDA as non-GAAP measures, says they may not be comparable with similarly titled measures used by other companies, and says they should be viewed as supplemental to the full financial statements. Murphy Oil investor financials
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When reading a company’s stated ratio, look for these details:
- Whether debt means total debt or net debt, and whether cash is deducted.
- Whether lease obligations are included.
- Which earnings period is used and what adjustments are made to EBITDA.
- Whether the measure is defined by the issuer as non-GAAP and described as supplemental.
What low leverage can—and cannot—tell you
All else equal, less debt can mean less pressure to make debt payments and more capacity to borrow. But a leverage ratio by itself does not establish that a company is financially strong or weak. Assess it alongside cash generation, profitability, debt maturities and terms, and other obligations. Murphy Oil also cautions that its leverage measure does not fully represent its ability to service debt.
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To judge a particular public company, use its current filings to identify the formula and relevant financial details, then compare that measure with its history or appropriate peers. Without those current company-specific facts and a suitable comparison, the label “low leverage” is not enough to support a conclusion.
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