What is Net Debt?
Net debt is total debt minus cash and cash equivalents. It reflects what a company would actually owe if it used all its cash to repay borrowings — a more useful gauge of leverage than gross debt, especially for companies sitting on large cash balances.
How It Works
- Formula: Net debt = Short-term debt + Long-term debt − Cash − Marketable securities
- Negative net debt means cash exceeds debt (a net-cash position)
- Used as an input in enterprise value and several leverage ratios
- Watch the cash quality: restricted, customer, or trapped cash should not be netted
- Common in credit analysis, M&A pricing, and dividend policy decisions
Saudi Context
Saudi listed companies disclose enough detail (debt by maturity, cash by type) to compute net debt accurately. PIF-backed Saudi companies often carry significant net cash, while real-estate developers and contractors typically carry meaningful net debt.
Example
A Saudi telco has SAR 12B in debt and SAR 3B in cash. Net debt = SAR 9B. With EBITDA of SAR 6B, net-debt/EBITDA = 1.5x — comfortable. A peer with SAR 12B debt and only SAR 0.5B in cash would have net debt of SAR 11.5B → ratio of 1.92x, materially worse.