A complete guide to net debt in Financial Due Diligence: components, calculation, debt-like items, cash-like items and the EV/Equity bridge.
Net debt is one of the most tested concepts in a Transaction Services interview. Almost every candidate can give a basic definition. Far fewer can walk through all its components — and that's where the interview is won or lost.
Net debt is calculated as:
Net Debt = Financial Debt – Cash and Cash Equivalents
It serves as the bridge from Enterprise Value (EV) to Equity Value. If you're buying a business at EUR 10m EV and it carries EUR 2m of net debt, you're paying EUR 8m for the shares.
In an FDD context, "financial debt" is broader than just bank loans. A complete answer includes:
Beyond formal financial debt, a Transaction Services professional looks for debt-like items — liabilities with an economic effect similar to debt:
Similarly, some assets behave like cash from the buyer's perspective:
Many candidates include working capital items (trade payables, accruals) in their net debt calculation. This is wrong. Trade payables belong in the working capital analysis, not in financial debt. Confusing the two in an interview signals a fundamental gap.
A net debt calculation that misses a EUR 1.5m unfunded pension deficit or forgets to include a EUR 800k earn-out payable has a direct effect on the equity price. At a 7x multiple, even a EUR 300k error in normalised EBITDA moves the price by EUR 2.1m — but a net debt error moves it pound for pound.
The training programme includes full EV-to-Equity bridge exercises across multiple case studies, with all components modelled on real transaction data.
Hundreds of candidates prepared their interviews with this programme. Those who landed the role have one thing in common: they worked the cases before walking into the room.
