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What you will learn
- Distinguish interest-bearing loans from other liabilities.
- Calculate explicitly defined net debt and net cash.
- Explain why reducing a loan does not always reduce net debt.
Choose components from the same balance-sheet date
The invented company has SEK 80 million long-term interest-bearing loans, 20 million short-term interest-bearing loans and 40 million cash. Trade payables of 35 million are explicitly non-interest-bearing in the model. All figures share one balance-sheet date. There are no other financial assets, lease items or restricted cash balances in these data.
We define net debt as the specified interest-bearing loans minus cash: 80 + 20 − 40 = SEK 60 million. Trade payables are excluded from this chosen definition. For a real company, read the measure’s reconciliation and notes, because financial assets, leases and other items may be treated differently.
If the table does not fit, scroll it sideways.
| Component | Amount | Our net debt treatment |
|---|---|---|
| Long-term interest-bearing loans | SEK 80 million | Add |
| Short-term interest-bearing loans | SEK 20 million | Add |
| Cash | SEK 40 million | Subtract |
| Non-interest-bearing trade payables | SEK 35 million | Excluded |
New borrowing can increase both debt and cash
Start from the initial table. The company borrows another SEK 20 million and keeps the entire amount as cash. Interest-bearing loans become 120 million and cash 60 million. Net debt remains 120 − 60 = SEK 60 million. This does not mean the loan has no interest or repayment terms.
Run a separate case from the same start: the company repays SEK 25 million using cash. Loans become 75 million and cash 15 million. Net debt is again 75 − 15 = SEK 60 million. Gross debt falls, but the difference between the two components is unchanged. Keep the cases separate so events are not combined in the wrong order.
When cash is used without reducing loans
Return to the starting position a third time and assume an operating cash outflow of SEK 15 million without a new inflow. Loans remain 100 million and cash falls to 25 million. Net debt rises to 75 million. A changed measure therefore needs explanation through its components rather than only a search for additional borrowing.
If cash instead exceeds the included loans, net debt becomes negative. This is commonly described as net cash. It does not mean every liability is zero or every unit of cash can be distributed. Availability, other payments and the definition still need examination.
Use the measure as the beginning of a question
Record the balance-sheet date, unit, included liabilities and deducted assets beside your calculation. Two companies with the same heading may use different boundaries. A high or low amount alone does not establish payment capacity, company value or a share’s future price.
Investiq’s company search helps identify the company in your material. Then read the company’s report and definitions for this independent calculation. The lesson does not offer a net-debt filter, a credit assessment or a recommendation to choose a particular company in the app. The balance-sheet lesson helps keep liabilities and equity separate.
Try it yourself
Another company has SEK 90 million interest-bearing loans, 120 million cash and 30 million explicitly non-interest-bearing trade payables. No other components enter the same simplified definition. Find net debt and decide whether the company has no liabilities.
Show the solution and explanation
Net debt is −SEK 30 million, meaning net cash of 30 million under the definition. The company still has loans and trade payables.
90 − 120 = −30. The 30 million trade payables are excluded from this measure but remain on the balance sheet.
Check your understanding
Why can repayment leave net debt unchanged?
When the same amount reduces both interest-bearing loans and deducted cash, their difference remains unchanged.
Can all long-term liabilities automatically be treated as interest-bearing?
No. Check the liability type and notes. The model’s loans are explicitly interest-bearing; real headings need examination.
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More lessons on this topic
Analyse company finances
Sources and examples
- UC: net debt and checking interest-bearing items (Swedish)
- SEC: income statements, balance sheets, cash flows and inventory turnover
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
