---
title: "What Is Net Debt?"
term: "Net Debt"
description: "Net debt is total interest-bearing debt minus cash and cash equivalents — a snapshot of how much debt the company truly carries after available liquidity is applied."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/net-debt
---

# What Is Net Debt?

> Net debt is total interest-bearing debt minus cash and cash equivalents — a snapshot of how much debt the company truly carries after available liquidity is applied.

**Net debt** measures a company's debt burden net of cash on hand — the figure used to bridge from enterprise value to equity value in most M&A and credit analysis.

### How it works

Standard calculation: short-term debt + long-term debt + capital leases (sometimes) − cash − cash equivalents − marketable securities. Example: $8M term loan, $2M drawn revolver, $1M cash → net debt $9M.

In a **cash-free, debt-free** sale, the seller keeps cash and pays off debt at close; purchase price adjusts if actual net debt differs from the target agreed in the LOI. Venture-backed startups often carry venture debt or equipment financing while keeping modest cash — net debt may be small but still affects waterfall at exit.

Enterprise value (EV) minus net debt approximates equity value. Multiples like EV/EBITDA use net debt in the numerator construction when moving from equity to enterprise metrics.

### Why it matters

- **Founders:** Before a sale or major debt round, clean up stray facilities and document restricted cash. Surprises at close reduce seller proceeds dollar-for-dollar in many structures.
- **Investors:** Leverage amplifies returns in buyouts and adds risk in downturns. Net debt trajectory — whether cash generation pays down borrowings — is central to credit and LBO underwriting.

### Common mistake

Subtracting all cash without checking restrictions. Customer deposits, escrow, or covenant-trapped accounts may not be available to repay debt in a stress scenario.

### Related ideas

See also [leverage multiple](/glossary/leverage-multiple), [cash-free debt-free](/glossary/cash-free-debt-free), enterprise value, and venture debt.

## FAQ

### What is Net Debt in simple terms?

Add up loans, credit lines, and similar debt, then subtract cash in the bank. If you owe $5M and hold $2M cash, net debt is $3M. Negative net debt means cash exceeds debt.

### Why does Net Debt matter?

Buyers and lenders price acquisitions and credit off enterprise value minus net debt to get equity value. For founders, hidden debt or restricted cash can change proceeds at close versus what headline valuation implied.


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Source: https://venturecapitaltracker.com/glossary/net-debt