Net debt is the difference between a company’s total financial liabilities and its available liquid resources — namely cash on hand and highly liquid financial investments. This indicator allows for a more precise assessment of a company’s financial position, revealing how much it effectively owes once the resources available to meet its obligations are taken into account.
Unlike other indicators, net debt helps identify common distortions that arise when analysing gross debt alone. Its use strengthens financial control, contributes to a company’s financial health, and provides greater confidence in decision-making, even in contexts of economic uncertainty. Technology plays an important role in this process by democratising access to information, making financial analysis faster and more accessible.
How does net debt differ from other debt indicators?
Net debt should not be confused with total debt or gross indebtedness — concepts frequently used in financial statements. The key difference lies in how each indicator accounts for a company’s financial obligations.
Total debt encompasses all financial liabilities without deducting available cash or liquid investments. Gross indebtedness, in turn, presents the absolute value of debts without factoring in available liquid assets.
Net debt, by contrast, accounts for those resources, offering a more realistic picture of the amount a company would actually need to mobilise to settle its financial obligations.
Analysing total debt alone can obscure a company’s true repayment capacity. Net debt, on the other hand, makes it possible to understand how much a small or medium-sized enterprise (SME) would need to mobilise to settle its obligations if it were to deploy all immediately available financial resources.
How to calculate the net debt of an SME?
The calculation of net debt is straightforward:
Net debt = Total financial liabilities – (Cash + Highly liquid financial investments)
To apply this formula correctly, the following steps are required:
Add together all bank loans, vehicle or equipment financing, and obligations arising from bond issuances that the company has yet to settle, considering the respective maturity dates for both short- and long-term debt.
Check the available balances across all of the company’s bank accounts, as well as any financial investments that can be redeemed quickly, such as term deposits with daily liquidity or fixed-income investment funds.
Subtract the available financial resources from the total financial liabilities to arrive at the net debt figure.
Source: Serasa Experian
Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=557194
