- Definition and Calculation
- Net debt measures company's ability to pay immediate debts
- Formula: Net Debt = Total Short Term + Total Long Term - Cash & Cash Equivalents
- Short term debts include current portion of long term loans
- Long term debts consist of term loans and bonds
- Cash & cash equivalents include bank cash and treasury bills
- Examples
- ABC Ltd had net debt of $125,000 with $60,000 short term debt
- Apple Inc. had net debt of $41,499 million as of September 2017
- Relevance and Interpretation
- Helps investors assess company's debt repayment ability
- Lower net debt indicates better financial performance
- Companies can have negative net debt with sufficient cash
- Higher net debt may suggest poor performance or liquidity issues