Reading the accounts
Net debt
Total borrowings minus cash — what a company would still owe if it used all its cash to repay debt.
How it works
Net debt is the honest measure of indebtedness. A company with $5bn of borrowings and $4bn of cash is far less leveraged than the gross figure suggests.
It feeds directly into enterprise value and into the leverage ratios lenders monitor.
Where it misleads people
Cash held overseas or needed for day-to-day operations is not freely available to repay debt, so headline net debt can overstate flexibility.
Formula
Net debt = total debt − cash and cash equivalentsRelated terms
- Enterprise valueWhat it would cost to buy the whole business: market value plus debt, minus cash.
- Net debt / EBITDAHow many years of operating earnings it would take to repay net borrowings.
- LiabilitiesEverything a company owes to someone else.
- Interest coverageHow many times over a company’s operating profit covers its interest bill.
Mentioned in
More in Reading the accounts
- Net income
- Inventory
- Net margin
- Intangible assets
- Operating cash flow
- Income statement
- Operating expenses
- Gross margin
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.