Yatırımcı.AI

Net Debt

Net debt is a company’s interest-bearing financial debt minus cash and cash equivalents: the part of its debt it could not repay from the cash on hand. Net debt summarises a company’s debt burden in a single figure.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Worked example
  4. 4.Interpretation
  5. 5.Pitfalls
  6. 6.Official sources
  7. 7.Frequently asked questions

Key Points

  • Even with high gross debt, a strong cash position reduces net debt; when cash exceeds debt the company has a “net cash” position.
  • Net debt relative to EBITDA and equity shows how much debt a company can carry.
  • cash at the balance sheet date can look temporarily high due to quarter-end transactions.

Formula / Calculation

Net debt = Short-term financial debt + Long-term financial debt − Cash and cash equivalents. Some analyses add lease liabilities to debt and count short-term financial investments as cash; use the same definition when comparing.

Worked Example

Illustrative

A company with TRY 3 billion of short-term financial debt, TRY 5 billion of long-term financial debt and TRY 2 billion of cash has net debt of 3 + 5 − 2 = TRY 6 billion. With annual EBITDA of TRY 4 billion, net debt/EBITDA is 6 / 4 = 1.5.

The figures are hypothetical values chosen to explain the concept; they are not data for any real fund, stock or market.

Interpretation

It is a core input to enterprise value and the net debt/EBITDA ratio.

Net debt relative to EBITDA and equity shows how much debt a company can carry. For companies with large foreign-currency debt, lira depreciation quickly inflates net debt in lira terms.

Pitfalls

cash at the balance sheet date can look temporarily high due to quarter-end transactions. Net debt is not a meaningful measure for banks and financial companies. The maturity profile and currency of debt matter as much as the net debt figure.

Official Sources

Official regulation and sources the definition is based on.

Pages Where This Term Appears

Related Terms

Frequently Asked Questions

Net debt is a company’s interest-bearing financial debt minus cash and cash equivalents: the part of its debt it could not repay from the cash on hand.

Net debt = Short-term financial debt + Long-term financial debt − Cash and cash equivalents. Some analyses add lease liabilities to debt and count short-term financial investments as cash; use the same definition when comparing.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy