Net debt
from class: Principles of Finance Definition Net debt is the total amount of a company's debt minus its cash and cash equivalents. It is used to measure a company's ability to pay off its debts if they were all due immediately.
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Predict what's on your test 5 Must Know Facts For Your Next Test 1. Net debt = Total Debt - Cash and Cash Equivalents. 2. A lower net debt indicates stronger financial health and greater ability to raise capital. 3. Companies with high net debt may face higher borrowing costs due to increased risk. 4. Net debt is an important component in calculating the Weighted Average Cost of Capital (WACC). 5. Investors use net debt to assess a firm's leverage and overall risk profile. Review Questions 1. How is net debt calculated? 2. Why is net debt an important metric for investors? 3. What impact does high net debt have on a company's cost of capital?
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