Valuation Updated November 2026

Net debt

Net debt = total interest-bearing debt - cash and cash equivalents. It is what the company would still owe after using its cash to repay lenders, and it is the number that links enterprise value to equity value: equity value = EV - net debt. Negative net debt means the company holds net cash.

Syntax

Net debt = short-term debt + long-term debt (+ lease liabilities) - cash and equivalents;  Leverage = net debt / EBITDA

Part	What it is
`short-term debt`	Current portion of long-term debt, revolver drawings, commercial paper
`long-term debt`	Bonds, term loans and notes, at face value or book value
`lease liabilities`	Included when leases are treated as debt (IFRS 16, and finance leases under US GAAP); keep EBITDA on the same basis
`cash`	Cash, cash equivalents and usually short-term investments; exclude restricted cash

Examples

Short-term debt 100, long-term debt 500, cash 150
=100 + 500 - 150

Result: 450

Debt 800, cash 1,200, market cap 3,000
Net debt = 800 - 1200
EV = 3000 + (-400)

Result: Net debt -400 (net cash), EV 2,600

A net cash company has an enterprise value below its market capitalization.

Net debt 450, EBITDA 150
=450 / 150

Result: 3.0x net debt to EBITDA

EV from a DCF 2,000, net debt 450, preferred 50, 100 diluted shares
=(2000 - 450 - 50) / 100

Result: Equity value 1,500, 15.00 per share

Common mistakes

Netting cash against accounts payable or accrued expenses: those are operating liabilities, not debt, and they belong in working capital.
Using market cap where enterprise value is needed: EV/EBITDA uses market cap plus net debt, otherwise a levered company looks cheap.
Including restricted cash or cash trapped in subsidiaries as if it could repay debt: either exclude it or note that it is not freely available.
Adding lease liabilities to net debt while EBITDA still deducts rent: the multiple is then inconsistent, so put leases in both or in neither.

Practice Net debt

These drills check your answer on live data, free, no account needed.

Enterprise value to equity valueFor three valuation cases, bridge from enterprise value to equity value (row 10: less debt, plus cash, less minority interest), then value per share (row 11) and the upside against the current price (row 12).
Debt service coverage testLenders compare cash available for debt service with interest plus principal. Fill the coverage ratio (row 8) and a covenant test (row 9) that shows "Pass" when the ratio is at least the minimum in B2 and "Breach" otherwise.

Questions

Is negative net debt good?

It means cash exceeds debt, so the company could repay every lender from its own balance sheet. It lowers financial risk, though a very large cash pile can also mean capital is sitting idle.

Are leases included in net debt?

Under IFRS 16 most analysts include lease liabilities, because they sit on the balance sheet and EBITDA excludes the rent. Under US GAAP operating leases are often left out and finance leases included. Whichever you choose, define EBITDA the same way.

What is a reasonable net debt to EBITDA?

It depends on how stable the cash flows are. Bank covenants often cap the ratio somewhere around 3x to 4x, utilities and infrastructure carry more, and cyclical businesses are expected to carry less.

Enterprise value to equity valueEquity value = enterprise value - debt + cash - preferred stock - minority interest. The EV to equity bridge step by step, with examples and per share value.
Debt scheduleA debt schedule rolls each loan forward: closing = opening + draws - repayments, with interest on the opening balance. Layout, example, amortization, sweeps.
DSCRDSCR = cash flow available for debt service / (interest + principal). How lenders compute it, exact examples, typical covenant levels and sizing debt from it.
EBITDAEBITDA = EBIT + depreciation and amortization, or net income + interest + taxes + D&A. Exact worked examples, what EBITDA leaves out and the usual mistakes.