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What is Net Debt, and why it can be more useful than Total Debt when evaluating Companies' Financial Strength.

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Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.


Difference between Total Debt & Net Debt

Total Debt Formula

Total Debt

= Current Debt + Long Term Debt

Net Debt Formula

Net Debt

= Total Debt − Cash & Cash Equivalents

Why "Net Debt" can be more useful than "Total Debt"

Net Debt provides a more accurate picture on the companies' debt burden after accounting for the company's immediate ability to repay some of it (with their Cash & Cash Equivalent.)

Apple's example: High Debt, Higher Cash.

To illustrate this, we will use Apple as an example.

One of the most popular ratio used to evaluate companies' Financial strength (or more specifically their level of Debt aka Gearing Ratio) is the Debt to Equity ratio.

and this is its formula

Debt to Equity ratio' = Total Debt/ Shareholders' Equity

Looking at the Debt to Equity Ratio of Apple,

it shows that they have higher than 100% D/E ratio since 2019,

and as high as 153% as of end of 2023.

However, this ratio can be misleading since Apple has an inordinate amount of Cash (the most amongst all the listed companies as a matter of fact), which is not accounted into the Debt to Equity Ratio.

When we take into consideration Apple's Cash & Cash Equivalents and calculate their Net Debt figures,

We can see that Apple is actually in a Net Cash position of $64,535 (Total Debt of $108,040 minus Cash & Cash Equivalents of $172,575).

Therefore they are actually in a Net Cash to Equity ratio of 87%, that is an extremely strong Financial position to be in.

(Net Cash of $64,535 divided by Shareholders' Equity of $74,100)

You may then ask, "Why would Apple take on so much Debt when it has so much Cash?"

The short answer is because it is a strategic move for them to do so because interest rates have been historically low (prior to the hike in 2022) [1].

Taking on manageable debt allows Apple to borrow money cheaply and leverage it for investments or shareholder rewards, potentially generating a higher return than keeping the cash idle.

As a result, Apple's Free Cash Flow has increased steadily during the duration. [2]

Where can you obtain Net Debt figures?

You can obtain Net Debt figure from sites like

Look under Financials > Balance Sheet > search for "Net Cash / Debt"

for the Period type, it is better to choose "Trailing" since it will show the most recent & updated figures.

All the figures in the table above are in positive figures, indicating that Fortinet was in a Net Cash position (Cash is more than Debt amount.)

[Formula for Net Debt on]:

For those who are wondering, the formula they use is

"Net Cash / Debt" = -"Total Debt" + "Cash & Cash Equivalent"


In conclusion, while total debt paints a picture, net debt provides a deeper perspective.

Considering a company's readily available cash alongside its liabilities offers a clearer view of its true debt burden and financial strength.




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