Debt and bankruptcy risk · updated October 21, 2026
What is a company's net debt and how is it calculated
Net debt shows how much the company would still owe if it used all its cash to pay off its loans and bonds. If it comes out negative, the company has more cash than debt: it is said to have net cash.
Net debt formula
- Financial debt
- Bank loans, bonds and leases, short and long term.
- Cash and equivalents
- Money in the bank and holdings that can be turned into cash within days (deposits, short-term government bills).
Worked example
A company has loans and bonds of $15 billion and $4 billion in cash.
If it paid off everything it could from the bank today, $11 billion would still be owed. Divided by EBITDA, this figure gives the debt to EBITDA ratio.
How to read net debt
Net debt on its own does not tell you whether it is a lot or a little. $10 billion is little for a company with $20 billion of EBITDA and a great deal for one with $2 billion. That is why it is almost always read divided by EBITDA.
When net debt can fool you
Trapped cash: part of the money may sit in other countries or be needed for day-to-day payments, so it cannot really go toward debt. Leases: some companies include them, others do not; compare figures calculated the same way.
Related terms
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Questions about net debt
What does negative net debt mean?
That the company has more cash than all its financial debt. It is a sign of a very strong balance sheet, common at large tech companies.
Why is cash subtracted?
Because the cash in the bank can pay off part of the debt at any time. What matters is what is left to pay after that.
These explanations are for information only. They are not a recommendation to buy or sell.
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