Net Debt
Net debt is financial debt less cash. In the simplified valuation model, it is deducted from enterprise value to calculate equity value.
Financial debt can include bank borrowings and shareholder loans. Cash is deducted from this amount. The treatment of leases, pensions, and other obligations in a transaction must be determined for the specific case. The availability of cash also needs review.
In the simplified model: Equity Value = Enterprise Value − net debt.
Example
Bank loans of EUR 2.5 million, shareholder loans of EUR 0.5 million, and lease obligations treated as financial debt of EUR 0.3 million are offset by EUR 0.2 million in cash on hand and EUR 0.8 million in bank balances. Under these assumptions, net debt is EUR 2.3 million.
Related terms
Net debt is financial debt less cash. In the simplified valuation model, it is deducted from enterprise value to calculate equity value.
Related terms