Does Net Debt include Excess Cash
I've seen conflicting accounts on what should be included in the net debt calculation, whether it is total cash (included cash necessary for operations) and including only excess cash. My intuition is it should be the latter, any guidance?
Depends on the exercise. For comps, I think you are fine just netting out the entire cash amount. However if you were modeling an insurance company for example, it would be excess cash over the statutory premium reserve. In that example it would be important as most of their cash is unavailable to pay down debt.
Personally what I do is net all the assets that are Cash or Cash Equivalents, given that the company can readily use them to reduce debt.
I believe that the key is understanding if the company could eventually use that cash or cash equivalent position for debt or if that cash must be used or held for other purposes.
That is how I do it, but I understand some people simply net the whole account. If the difference is not substantial I wouldn't stress about it.
The real Johnny Cashflow has entered the chat.
Ut voluptas animi eum distinctio unde voluptates. Sunt dignissimos maiores cupiditate iste. Iure qui voluptates placeat reiciendis quidem omnis amet. Illo et dolore modi tempora ducimus est vero. Asperiores repudiandae quia sit dignissimos cum est consequatur perspiciatis. Quia perspiciatis ratione vero minus odit culpa et sint. Doloremque doloremque sed saepe consequuntur ut tenetur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...