In this series, we’re discussing whether Sempra Energy (SRE) or Dominion Energy (D) will come out stronger after completing their big mergers this year. Dominion Energy and Sempra Energy both expect to increase their long-term debt, which could dent their leverage ratio at least in the short term.
At the end of 3Q17, Dominion Energy had a net debt of $36.4 billion and a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio close to 6.0x. Sempra Energy had a net debt of $18.5 billion and a net debt-to-EBITDA ratio of ~5.5x.
The net debt-to-EBITDA ratio shows how many years it will take for a company to repay its debt using its EBITDA if its debt and EBITDA are held constant.
Sempra Energy’s downward sloping leverage in 2017 indicates that its earnings grew at a higher rate compared to its debt during this period.
Read NEE, SO, DUK, or D: Which Utility Has the Most Alarming Leverage? to learn more.