Net debt refers to the amount of money a company owes to its creditors, minus any cash and cash equivalents it has. It essentially shows how much a company would still owe if it used all of its cash to pay off its debts. A negative net debt means the company has more cash than debt.
Digging a little deeper, net debt is an important indicator of a company's financial health. It's calculated by subtracting a company's cash and cash equivalents (like short-term investments and marketable securities) from its total debt (including short-term and long-term obligations).
This metric helps investors to understand a company's ability to pay off its debts using its liquid assets in case of any financial crunch. It provides a snapshot of the firm’s leverage position and is often used to compare the debt levels of different companies.
However, having a high net debt doesn't necessarily mean a company is in poor financial health. It depends on the industry, the company's size, and its ability to generate cash flow in the future.
For General Motors, net debt is calculated by subtracting its cash and short-term investments from its total debt, which includes both short-term borrowings and long-term obligations like bonds payable.
Apple's net debt is determined by subtracting its substantial cash reserves and marketable securities from its total debt, which is primarily composed of non-current liabilities such as bonds and lease obligations.
For Exxon Mobil, net debt is calculated by subtracting its cash and cash equivalents and short-term investments from its total debt, which includes both current liabilities (like accounts payable and accrued liabilities) and long-term debt.