What is Net Debt?
Net debt is total interest-bearing debt minus cash and cash equivalents.
It answers a simple capital structure question: “If we used all available cash to repay borrowings today, how much debt would still remain?”
Analysts and CFOs track net debt alongside Net Debt/EBITDA, Debt-to-Equity Ratio, Debt-to-Capital Ratio, and Interest Coverage Ratio to assess leverage, set target capital structures, negotiate covenants, and bridge from Enterprise Value to Equity Value in M&A and valuation work.
Formula
Let gross debt include short-term debt, long-term debt, lease liabilities, and other interest-bearing borrowings.
Because net debt represents the “debt left over after cash,” it’s a direct input into leverage metrics such as Net Debt/EBITDA, the Leverage Ratio, and valuation work using EV/EBITDA.
Example
Assume a company reports:
- Short-term debt: $250,000
- Long-term debt: $1,750,000
- Lease liabilities / other interest-bearing debt: $150,000
- Cash and cash equivalents: $900,000
- Compute gross debt:
$250,000 + $1,750,000 + $150,000 = $2,150,000 gross debt.
- Compute net debt:
$2,150,000 − $900,000 = $1,250,000 net debt.
- Compute net debt as a percentage of gross debt:
$1,250,000 ÷ $2,150,000 ≈ 58.1%.
Here, more than half of gross debt remains after using cash, signaling an elevated leverage position that will feed directly into metrics like Net Debt/EBITDA, Debt-to-Equity Ratio, Debt Service Coverage Ratio, and valuation bridges such as EV/EBITDA and WACC-based discount rate analysis.