Definition of net debt
Net debt is the difference between a company's financial liabilities and its available cash. It answers a simple question: if the company used all its cash to repay its debt, what would the residual debt be?
Formula: Net debt = Financial liabilities (ST + LT) − Cash & equivalents
A positive result means the company carries net debt. A negative result means it holds more cash than debt — this is known as a net cash position.
A concrete example: a company with €5M of bank debt and €2M of cash has net debt of €3M. A company with €1M of debt and €4M of cash has net cash of €3M (net debt = −€3M).
Where to find the data and how to calculate it
The data you need is found in the balance sheet, published in the half-year and annual reports:
| Item | Location on the balance sheet | Include? |
|---|---|---|
| Long-term bank loans | Non-current liabilities | Yes |
| Current portion of long-term loans | Current liabilities | Yes |
| Bank overdrafts | Current liabilities | Yes |
| Bonds and bond debt | Non-current liabilities | Yes |
| Trade payables | Current liabilities | No (operating debt) |
| Cash and equivalents | Current assets | Subtract |
| Marketable securities | Current assets | Depending on liquidity |
Caution: trade payables and other operating liabilities (tax, payroll) are not part of net debt. These are operating liabilities tied to the business cycle, distinct from financial debt.
Net debt calculator
The net debt / EBITDA ratio
On its own, the amount of net debt says little. What matters is its relationship to the company's ability to generate cash (EBITDA). The net debt / EBITDA ratio measures the number of years needed to repay net debt out of current EBITDA.
| Net debt / EBITDA ratio | Interpretation | Screener signal |
|---|---|---|
| < 0 (net cash) | Excellent strength. Surplus cash. | Strong + |
| 0 to 1x | Very healthy. Minimal debt. | Positive |
| 1x to 2x | Acceptable. Watch the trend. | Neutral |
| 2x to 3x | Caution. Repayment capacity is stretched. | Watch |
| > 3x | High financial risk (except in specific sectors). | Negative signal |
These thresholds are guides, not absolute rules. Some capital-intensive sectors (real estate, infrastructure, utilities) operate structurally with high ratios. For Euronext Growth small caps — mostly services, tech or light industrial companies — a ratio below 2x is preferable.
Why the trend matters
A net debt / EBITDA ratio of 2x is not the same signal depending on context:
- 2x and falling over 3 years: the company is deleveraging, a positive sign.
- 2x and stable: growth is funding repayments, a balanced situation.
- 2x and rising over 3 years: debt is building up — look at why. Growth through acquisitions? Deteriorating EBITDA?
Always analyse net debt over 3 to 5 financial years to detect the trend.
Screener Small Caps factors debt into the Strength pillar. Filter Euronext Growth stocks by level of financial leverage.
New to screening European small caps? See the European small-cap stock screener guide and the glossary.