Net Debt
Net Debt
Interest-bearing debt less cash and marketable securities: what the company would still owe if it used all its cash to repay lenders. Negative net debt means a net cash position.
When to use: Use it in place of gross debt whenever cash is meaningful: for enterprise value, for leverage ratios, and to compare companies that carry different cash balances against their borrowings.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| NetDebt | Net Debt | Debt net of cash and equivalents | $ |
| TotalDebt | Total Debt | Short-term + long-term interest-bearing debt | $ |
| Cash | Cash, Equivalents & Marketable Securities | Cash plus marketable securities | $ |
Real-Life Examples
Example 1: Leveraged Manufacturer
Total debt $800M, cash and marketable securities $250M.
Given
Step-by-Step
The firm owes $550M net of the cash it could hand back to lenders tomorrow. This, not the $800M gross figure, is what enterprise value and leverage ratios should use.
Example 2: Net Cash Software Company
Total debt $120M, cash $300M.
Given
Step-by-Step
Negative net debt: the company could repay every borrowing and still hold $180M. Its enterprise value is below its market capitalization.
Frequently Asked Questions
Cash, cash equivalents and marketable securities that could be used to repay debt. Restricted cash and cash trapped in subsidiaries that cannot be repatriated are often excluded by careful analysts.
Under current accounting standards most leases sit on the balance sheet as liabilities and many analysts include them. Be consistent across the companies being compared.