Net Debt

Net Debt refers to a financial metric that represents a company’s total debt minus its cash and cash equivalents. It provides a clearer picture of a company’s financial health by indicating how much debt remains after accounting for liquid Assets.

Calculation: Net Debt = Total Debt – Cash and Cash Equivalents

Examples:

  • Example 1: A company has:

    • Total Debt: $500 million
    • Cash and Cash Equivalents: $100 million

    Net Debt = $500 million – $100 million = $400 million

  • Example 2: A company with:

    • Total Debt: $300 million
    • Cash and Cash Equivalents: $50 million

    Net Debt = $300 million – $50 million = $250 million

Cases:

  • Case 1: A company with high net debt may be viewed as more risky by investors, as it suggests reliance on borrowing.

  • Case 2: A negative net debt (where cash exceeds total debt) can indicate a strong Liquidity position, making the company attractive to investors.