How to Calculate Net Debt

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Calculating net debt can help make informed investment decisions.
Calculating net debt can help make informed investment decisions. (Image: Calculator image by Alhazm Salemi from Fotolia.com)

“Net debt” is calculated by comparing a company’s debts and liabilities. Net debt is important for most investors when deciding to buy or sell a company's stock. If a company’s net debt is high, that might indicate that the overall financial health of the company is poor.

Add up the company’s short-term debts. Short-term debts are any liabilities that are due or that must be paid off within one year. Write down all such debts and liabilities and use a calculator to add them together. Write the sum of the short-terms debts at the bottom of your list.

Add up company’s long-term debts. These are liabilities and amounts due one year or longer from now. Long-term debts can include property mortgages or business loans. Write all debts that fit this description on your paper and add them up separately. Write their total at the bottom of your long-term debt list.

Add up the amount of cash or cash equivalents that the company has on hand. Cash equivalents are assets that can be quickly converted into liquid assets or cash. For example, inventory can be sold and turned into a liquid asset immediately. Write down the sum total of cash and cash equivalents.

Add the totals of the long-term and short-term debts together. Subtract your total cash and cash equivalents from the sum of the debts. The difference is the net debt.

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