In 30 seconds
- Net debt = short- and long-term financial debt − cash and short-term investments.
- Divided by EBITDA, it tells you how many years of gross operating profit it would take to pay off all the debt.
- The bar depends on the sector: Kaplio's guide tolerates up to 5.5x for utilities, 3.5x for telecoms and just 1.5x for software.
- Duke Energy ended 2025 with $89,591 million in net debt, 5.5x its EBITDA: right at its sector's limit.
- Leases, trapped cash and pensions can change the figure: read the notes before you trust the number.
Introduction
Alphabet ended 2025 with $49,085 million in debt. Duke Energy, the big utility of the southeastern United States, ended 2025 with $87,212 million in long-term debt. Both companies borrow. But Alphabet was sitting on $126,843 million in cash and short-term investments at the end of 2025: it could pay off every dollar tomorrow and still have $77,758 million left over. Duke Energy couldn't. Debt minus the money on hand is net debt, and it's the first number to check before you decide whether a company's debt is a problem.
Explanation
Net debt is what a company would still owe if it used all of its available money to pay its lenders. You start with financial debt, the kind that charges interest: bank loans, bonds and commercial paper, both the part due this year and the part due later. Then you subtract cash and the short-term investments the company can sell within days, such as Treasury bills.
Think of a mortgage. You owe the bank $150,000, but you have $30,000 in your checking account and $20,000 in a CD that matures next month. Your gross debt is $150,000; your net debt is $100,000. Your neighbor owes the same amount and has no savings. On paper you both owe the same, but he's stretched far thinner.
When cash exceeds debt, net debt turns negative it's called net cash. That's Alphabet's situation. When it's positive, every dollar of net debt is a commitment the company will have to pay off, or refinance, out of what the business earns.
Net debt versus EBITDA
A billion dollars of net debt would crush a machine shop and barely register at a utility. That's why the figure is compared with EBITDA, operating income before depreciation and amortization. The ratio answers a simple question: how many years of gross operating profit would it take to pay off all the debt? It's an approximation, because EBITDA isn't free cash, but it works for comparing companies in the same sector.
Its cousin, the debt-to-equity ratio, tells you how the company is financed; net debt to EBITDA tells you whether it can pay what it owes. And net debt is one of the building blocks of enterprise value (EV).
Formula
Net debt = Short-term debt + Long-term debt − Cash and equivalents − Short-term investments
Financial debt = bank loans + bonds + commercial paper (including the portion due this year)
Net debt / EBITDA = Net debt / (Operating income + Depreciation and amortization)
Net cash = negative net debt (more cash than debt)
Lease-adjusted version = Net debt + Lease liabilities
Example
The table below shows net debt to EBITDA for four US utilities, using Kaplio's data: Duke Energy, Southern Company, Dominion Energy and NextEra Energy. Read it as the number of years of EBITDA each one would need to pay off its net debt. Utilities live with high multiples because their revenue is regulated and very stable; that's why Kaplio's sector guide gives them more room than any other sector.
Step by step: Duke Energy on December 31, 2025 (2025 10-K, in millions of dollars)
1. Long-term debt: 80,108, plus 7,104 due within a year. Total: 87,212.
2. Short-term debt (commercial paper and loans due in under a year): 2,624.
3. Cash: 245. No short-term investments to subtract.
4. Net debt = 87,212 + 2,624 − 245 = 89,591.
5. EBITDA = operating income of 8,626 + depreciation and amortization of 7,704 = 16,330.
6. Net debt / EBITDA = 89,591 / 16,330 = 5.5x.
Duke Energy sits right at its sector's bar. That's not an alarm: it spends heavily on grids and power plants and pays for them with debt, like every utility. But it has no room left.
If your number doesn't match the table, that's normal: the table uses the trailing twelve months and the stock page's own recipe. Always compare figures built with the same recipe.
Your turn. Southern Company ended 2025 with $65,649 million in long-term debt (including its finance leases), $6,220 million due within a year, $722 million in short-term debt and $1,639 million in cash. In 2025 its operating income was $7,285 million and its depreciation and amortization, $6,030 million. Work out its net debt and its multiple of EBITDA.
Before you look at the answer: do you think Southern Company carries more or less debt than Duke Energy? Answer: net debt of $70,952 million at the end of 2025 and EBITDA of $13,315 million: 5.3x. A bit more breathing room than Duke Energy, and also within the utilities' bar.
Real-data example
| Company | Ticker | Net debt/EBITDA |
|---|---|---|
| Duke Energy Corporation | DUK | 5.6 |
| The Southern Company | SO | 5.2 |
| Dominion Energy, Inc. | D | 7.2 |
| NextEra Energy, Inc. | NEE | 6.1 |
How to read it
How to read it
These are the bars the sector guide applies on every Kaplio stock page. Below the bar, the debt is in range; above it, it isn't.
| Sector | Kaplio's bar (net debt/EBITDA) | Why |
|---|---|---|
| General and industrials | healthy below 3x | an industrial company with heavy debt suffers badly in a recession |
| Software | up to 1.5x (rest of tech, up to 2x) | cash-generating businesses that don't need debt |
| Consumer staples and pharma | healthy below 2.5x | a defensive company loaded with debt loses its whole point |
| Energy | healthy below 2x, on trough EBITDA | EBITDA collapses when oil prices fall |
| Telecoms | up to 3.5x | spectrum and fiber debt is structural |
| Utilities | healthy below 5.5x | regulated, stable revenue |
| REITs (listed real estate) | meets up to 6x, excellent up to 5x | property is financed with debt by design |
Net cash is the most comfortable position, but don't turn it into a fetish: a utility with no debt would be a utility that isn't investing. What matters is that the multiple fits the stability of the business and doesn't creep higher year after year. This ratio isn't used for banks and insurers: debt is their raw material.
Pitfalls and limitations
1. Leases. Since 2019, companies have carried what they owe on leased stores, aircraft or cell towers on their balance sheets, but they don't count it as financial debt, and many databases don't add it in either. Duke Energy had $1,271 million in operating lease liabilities at the end of 2025: include them and its multiple goes from 5.5 to 5.6x, above the bar. For retail chains, the gap is far bigger.
2. Cash that isn't free. Subtracting all the cash assumes the company can use it to pay lenders. If it sits in foreign subsidiaries, is restricted by a contract or is the working cash the business needs every day, real net debt is higher.
3. Long-term investments. Apple is the best example of the nuance. At the end of its fiscal 2025 (September 27, 2025) it had $98,657 million in financial debt and $54,697 million in cash and short-term investments: net debt of $43,960 million. But on that date it also held another $77,723 million in long-term marketable securities, bonds it can sell within days. Count them and Apple has net cash. Both readings are defensible; just don't mix them when you compare companies. Either way, with EBITDA of $144,748 million in fiscal 2025, its net debt was 0.3x EBITDA.
4. Debt you can't see. Guarantees given to third parties, receivables sold with recourse or an underfunded pension plan all work like debt. Search the notes for the words "guarantees," "off-balance sheet arrangements" and "pension."
5. Peak EBITDA. At a cyclical company, 2x a record year's EBITDA can turn into 6x a recession year's. That's why Kaplio's guide asks you to read energy companies on trough EBITDA, and flags that the multiple on the stock page is the current one, not the cycle's.
Case in point: Alphabet, net cash as a cushion
On December 31, 2025, Alphabet held $126,843 million in cash and short-term investments against $49,085 million in debt: net cash of $77,758 million. Its 2025 operating income was $129,039 million. So why does a company like that borrow at all? Issuing bonds can be cheaper than selling investments, and it buys flexibility. Next to Duke Energy, gross debt tells the opposite story as soon as you subtract the cash. The next step is checking whether earnings cover the interest bill, in the lesson on debt and interest expense.
Practice on Kaplio
Frequently asked questions
What does negative net debt mean?
It means the company holds more cash and short-term investments than financial debt: it could repay everything it owes with money it already has. That position is called net cash. Alphabet had $77,758 million of net cash at the end of 2025. It's a very comfortable spot, though on its own it doesn't prove the business is any good.
What is net debt vs. total debt?
Total, or gross, debt is all of a company's financial debt: loans, bonds and commercial paper, short and long term. Net debt subtracts cash and short-term investments. Two companies with identical total debt can be in opposite positions if one has plenty of cash and the other almost none, as Alphabet and Duke Energy show.
What is the net debt formula?
Add long-term debt, the portion due within a year and short-term debt, then subtract cash and short-term investments. For Duke Energy at the end of 2025: 87,212 + 2,624 − 245 = $89,591 million. Every input sits on the balance sheet in the company's annual report, the 10-K, so you can check it yourself.
What is the net debt to EBITDA ratio?
It's net debt divided by EBITDA: the number of years of gross operating profit it would take to pay off all the debt. A 2 means two years. Kaplio's guide considers below 3x healthy in general, up to 1.5x for software, up to 3.5x for telecoms and below 5.5x for utilities.