Definition
Net debt is total debt minus cash and cash equivalents. It bridges enterprise value to equity value in valuation models.
Formula
Net debt = debt - cash
How to use it
- Include short-term and long-term debt; exclude operating liabilities unless they are debt-like.
- Use the same balance sheet date as your enterprise value inputs.
- If cash exceeds debt, net debt is negative (net cash).
Common mistakes
- Mixing market value of equity with a balance sheet from a different date.
- Counting restricted cash as fully available.
- Double-counting lease liabilities if EV already includes them.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Net Debt" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., Equity Value Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Enterprise value vs equity value: how to bridge EV to equity) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Equity Value Calculator: Convert enterprise value (EV) into equity value using cash, debt, and other adjustments (optionally per share).
- Multiple Valuation Calculator: Estimate enterprise value and equity value from a metric (ARR or revenue) and a valuation multiple (with net debt adjustments).
Guides
- Enterprise value vs equity value: how to bridge EV to equity: A practical guide to converting enterprise value (EV) into equity value using net debt and other claims (and avoiding common valuation mix-ups).
- Multiple valuation: how to use ARR/revenue multiples and avoid mix-ups: A practical guide to multiple-based valuation: choosing a metric, applying EV multiples, and bridging to equity value via net debt.
- Valuation modeling hub: WACC, DCF, multiples, and equity value: A practical hub for valuation modeling: estimate a discount rate (WACC), run a simple DCF with sensitivity analysis, and translate enterprise value to equity value.