FINOVIEW

Financial debt

#09
GUIDING QUESTION

What part of your debt is bank/financial debt and how is it split by maturity?

Separate debt with an explicit cost (loans, leasing, bonds) from the rest.

01.What it is

Financial debt ≠ all liabilities. What matters is its split between short and long term and its size relative to equity.

02.Component masses

  • Short-/long-term financial debt
  • Equity
  • Cash for net debt

03.Formula

MAIN FORMULA
Financial leverage: Net financial debt ÷ Equity

04.Interpretation

  • Concentration in the short term → refinancing risk.
  • Too high relative to equity → high leverage.

05.Related to

  • Debt quality
  • Interest coverage
  • Net debt/EBITDA