Net debt

Net debt subtracts cash and equivalents from total interest-bearing debt to produce the amount of debt remaining if the company retired borrowings using all available liquidity. It is the more honest leverage figure because it acknowledges that a company with $50 billion of debt and $50 billion of cash is functionally unleveraged, while a gross-debt-only lens would call them identical. Net debt is the bridge from enterprise value to equity value in any DCF: enterprise value (computed by discounting FCFF at WACC) minus net debt equals equity value. We are careful about two things. First, only liquid assets count — restricted cash, customer deposits, and operating-cash buffers should not be netted because they are not available for debt repayment. Second, off-balance-sheet liabilities (operating leases under pre-IFRS-16, pension underfundings, environmental and litigation reserves) should be treated as debt-equivalents for leverage analysis even when they sit elsewhere on the balance sheet.