...?||Reliance is net debt free company, what does it mean?||
Simply put, net debt is borrowings minus cash. So, if a business has debt of 100 and cash of 40, its net debt would be 60 (100 minus 40). Debt includes both short-term and long-term borrowings, while cash here includes marketable investments that can be converted to cash in quick time. Net debt tells us whether a business has the money to pay off all its debt, if it becomes due immediately.
Heads up net debt is not the same as debt. The prefix net before debt is crucial. So, when a business says it is net debt-free, that does not mean it has repaid all its borrowings. The debt is very much there until it is actually paid off. To be sure, a business can be net-debt free even without paying off debt; all it needs to do is to keep cash equal to debt.
For instance, in the case of Reliance Industries, its net debt as on March 2020 was 1.61-lakh crore (outstanding debt of 3.36-lakh crore minus cash and equivalents of 1.75-lakh crore). Now, the company says that with its recent fund raise of 1.69-lakh crore (1.16-lakh crore from the Jio deals and 53,000 crore from the rights issue), it has become net debt-free. Effectively, with these deals, cash and equivalents would rise to 3.44-lakh crore, against outstanding debt of 3.36 lakh crore.
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...?||Reliance is net debt free company, what does it mean?|| Simply put, net debt is borrowings minus cash. So, if a business has debt of 100 and cash of 40, its net debt would be 60 (100 minus 40). Debt includes both short-term and long-term borrowings, while cash here includes marketable investments that can be converted to cash in quick time. Net debt tells us whether a business has the money to pay off all its debt, if it becomes due immediately. Heads up net debt is not the same as debt. The prefix net before debt is crucial. So, when a business says it is net debt-free, that does not mean it has repaid all its borrowings. The debt is very much there until it is actually paid off. To be sure, a business can be net-debt free even without paying off debt; all it needs to do is to keep cash equal to debt. For instance, in the case of Reliance Industries, its net debt as on March 2020 was 1.61-lakh crore (outstanding debt of 3.36-lakh crore minus cash and equivalents of 1.75-lakh crore). Now, the company says that with its recent fund raise of 1.69-lakh crore (1.16-lakh crore from the Jio deals and 53,000 crore from the rights issue), it has become net debt-free. Effectively, with these deals, cash and equivalents would rise to 3.44-lakh crore, against outstanding debt of 3.36 lakh crore.