What happens to a company's Net Debt/EBITDA ratio if it sells a business at a lower multiple than its current value?

When a company sells a business at a lower multiple than its current value, the Net Debt/EBITDA ratio is impacted mainly because of the changes in EBITDA that result from the sale. Selling a business reduces overall EBITDA, especially if the business being sold contributes significantly to the company's earnings.

If the EBITDA declines as a result of the sale and the net debt remains unchanged (or does not decrease proportionately), the ratio of Net Debt to EBITDA will increase. This is because the denominator of the ratio (EBITDA) decreases while the numerator (Net Debt) stays the same, leading to a higher ratio.

Therefore, the correct reasoning for this question is that a larger reduction in EBITDA, due to the sale of the business, leads to an increase in the Net Debt/EBITDA ratio. This illustrates the relationship between enterprise value and EBITDA, showing how valuation metrics can shift based on company transactions.