Net Debt
Net Debt is a measure of a company’s financial leverage. It indicates how much debt would remain if the company used all its cash to pay down it’s debt.
Formula
Net Debt = Debt - Cash
Example
💡 Net Debt is important in transactions and is used as a shorthand to determine Equity Value from Enterprise Value.
In the room
Net debt is the shorthand that moves you between enterprise and equity value, so it appears in almost every valuation conversation. The logic is simple: cash on the balance sheet could be used to pay down debt, so you net it out.