Why net debt matters to a first-time founder
Net debt helps founders, lenders and buyers judge leverage after allowing for cash that could repay borrowings. A rising figure can signal tighter financial flexibility even when revenue grows. It should be read with repayment dates, interest costs and cash generation because a single total can hide urgent obligations.
Examples of net debt
A company has ₦900 million of loans and ₦250 million in cash and cash equivalents. Its net debt is ₦650 million. If ₦100 million of that cash is restricted and unavailable for repayment, an adjusted view may treat usable cash as ₦150 million, producing net debt of ₦750 million.
Common misunderstanding
Net debt is not total liabilities. It normally includes interest-bearing borrowings and subtracts cash and cash equivalents, while trade payables and provisions are generally excluded. Definitions can differ in lending agreements and acquisitions, especially for leases, shareholder loans, restricted cash and debt-like items.
When to use it
Use net debt in financing, covenant, valuation and acquisition discussions, but write down the calculation rather than relying on the label. Reconcile it to the balance sheet and read the contract definition where one applies. Pair it with cash flow and debt-service requirements to assess affordability.