Net debt generally equals interest-bearing debt minus available cash, subject to the definition agreed for a particular financial review or transaction.
Definition
Net debt is commonly calculated by subtracting cash available to the business from interest-bearing debt. The calculation may include or exclude items such as leases, shareholder loans, accrued interest, restricted cash, or other debt-like amounts, depending on the purpose and the agreed definition. Firms may present different figures because their accounting classifications, cash availability assumptions, and transaction terms differ. Owners reviewing a sale calculation should check the included accounts, measurement date, and treatment of disputed items. In many transactions, the calculation affects the amount attributed to equity holders after enterprise value is established. Net debt is not the same as total liabilities, working capital, or cash flow. It is also not necessarily the amount shown as borrowings on a balance sheet. A transaction document may set its own calculation rules, so a headline figure alone does not establish the closing adjustment. See the guide to preparing valuation records for related context.
How owners use it
- Owners compare debt and available cash when reviewing a potential equity proceeds calculation.
- A transaction team reconciles the balance sheet to the agreed definition, flagging restricted cash or disputed debt-like items.
- If debt is $500,000 and available cash is $120,000, net debt is $500,000 - $120,000 = $380,000.
- Owners consider net debt alongside enterprise value and working capital when reviewing a proposed transaction calculation.
