Accounting and Corporate Finance
Intermediate
Net Debt
An analytical measure that offsets selected cash and cash-equivalent balances against selected interest-bearing debt obligations.
Why It Matters
Net debt is used to bridge enterprise value to equity value and to assess leverage, refinancing capacity, acquisition funding, and covenant headroom. Its usefulness depends on whether reported cash is accessible and whether leases, pensions, guarantees, or other debt-like claims are included.
Reading the Measure
A working relation and an interpretive limit for corporate-finance use.
Working relation
Net debt = included interest-bearing debt − included cash and cash equivalents
Interpretive caution
Net debt is not standardized. Restricted or trapped cash may not be available to repay debt, and analysts differ on leases, securitizations, pensions, derivatives, and other debt-like obligations.
Accounting reference: SEC: Non-GAAP Financial Measures
Selected Literature
A short list of directly relevant archive entries.
1986
Advanced
Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers
Michael C. Jensen
American Economic Review
1995
Advanced
2006
Advanced
Related Cases
1819
Financial Law
McCulloch v. Maryland
17 U.S. (4 Wheat.) 316 (1819)
Federal power to charter a national bank and state authority to tax federal banking operations.
1919
Corporate Law
Dodge v. Ford Motor Co.
204 Mich. 459, 170 N.W. 668 (1919)
Corporate purpose, dividends, and the boundary between managerial discretion and shareholder claims.
1977
Securities Regulation
Santa Fe Industries, Inc. v. Green
430 U.S. 462 (1977)
Whether unfairness in a freeze-out merger, without deception or manipulation, states a federal securities-fraud claim.
1983
Corporate Law
Weinberger v. UOP, Inc.
457 A.2d 701 (Del. 1983)
Entire fairness review, minority-shareholder protection, and valuation in a controlling-shareholder freeze-out merger.