Question

What items to include for NET DEBT calculation? we are given

Current assets
Cash and cash equivalents	113,699
Trade and other receivables	32,564
Short-term derivative assets & other current assets	1,194
Total current assets	147,457
Non-current assets
Property, plant & equipment	40,862
Intangible assets	145,539
Deferred tax benefit	37
Other receivables & Long-term derivatives	1,975
Total assets	335,870
Liabilities
Current liabilities
Trade and other payables	31,995
Employee entitlements	27,336
Lease liabilities	6,475
Income tax payable	1,105
Derivative liabilities	2,397
Other current libilities	2,228
Total current liabilities	71,536
Non-current liabilities
Term debt	-
Derivative liabilities	17
Lease liabilities	21,286
Deferred tax liabilities	821
Other non-current liabilities	2,880
Total non-current liabilities	25,004
Equity
Total equity	239,330
Total equity and liabilities	335,870
Net Debt

Answer 1

Net Debt is a measure of liquidity basis the status as depicted from the financial statements of the company. It helps indicate the ability of a company to pay off its debt in short term and can serve as a better indicator of the strength of a company with regards to its ability to repay its debts.

Net Debt can be calculated by summing up all the Short Term Liabilities (herein after referred to as 'STL') and Long Term Liabilities (hereinafter referred to as 'LTL') and reducing from the same the value of Cash and Cash Equivalents ((herein after referred to as 'CCE'), CCE to include items like bank deposits, treasury instruments, commercial papers or other such instruments that can be converted into cash in a very short term period. In some cases, other classes of current assets (say debtors, stock of raw material, stock of finished goods and other current assets) are also included in CCE if the same are mentioned to be of a nature that they can be converted into cash easily and quickly (say within a month or two months). In case such facts are not provided, such class of current assets may not be considered for the purpose of calculation of CCE.

Now, for calculation of Net Debts, the equation shall be as follows.

Net Debt = STL + LTL - CCE

For the purpose of our question, we need to capture the value for LTL, STL and CCE, the same been calculated below.

Short Term Liabilities (STL)

These are also referred to as Current Liabilities and shall include the following line items

Current liabilities
Trade and other payables	31,995
Employee entitlements	27,336
Lease liabilities	6,475
Income tax payable	1,105
Derivative liabilities	2,397
Other current libilities	2,228
Total current liabilities	71,536

Long Term Liabilities (LTL)

These are also referred to as Non Current Liabilities and shall include the following line items

Term debt	-
Derivative liabilities	17
Lease liabilities	21,286
Deferred tax liabilities	821
Other non-current liabilities	2,880
Total non-current liabilities	25,004

Cash and Cash Equivalents

For the purpose of our question, the following line items have been considered.

Cash and cash equivalents	113,699
Short-term derivative assets & other current assets	1,194
Total Cash and cash equivalents	114,893

Short-term derivatives and other current assets have been included on the premise that Derivatives, as instruments, are tradeable and liquid in their characteristic.

So we have with us the values of

STL - 71,536

LTL - 25,004

CCE - 114,893

Applying the above values to the equation of Net Debt mentioned above, we can calculate the value of Net Debt as below

Net Debt = STL + LTL - CCE

Thus, Net Debt = 71,536 + 25,004 - 114,893 = (-) 18,353

The value of Net Debt is a negative figure implying that the business has enough Cash and Cash Equivalents to service the Short Term Liabilities and Long Term Liabilities and thus, enjoy a higher financial stability and liquidity to run its operations.