What is net debt?

Net debt adds up what a company owes to lenders and takes off the cash it could use to pay them.

Start with borrowings: the bank loans, bonds and other loans on the balance sheet. Most companies add lease liabilities, because a long lease on a building or a network is a fixed promise to pay, like a loan. Some also add interest that has built up but not yet been paid. Then take away cash.

The answer is net debt. If cash is bigger than borrowings, the company has net cash instead.

Net debt on its own says little. £500m is a lot for a company with £100m of turnover and very little for one with £10,000m. So compare it with what the company earns, and look at the interest: how much of every £100 of turnover goes to the lenders.

Thames Water's group balance sheet at 31 March 2026 shows borrowings of £18,982.0m: £635.3m due within a year and £18,346.7m due later. It held £557.1m of cash.

The accounts set out what goes into its statutory net debt: £12,837m of bonds, £5,840m of bank loans and private placements, £305m of interest owed on its borrowings, an £87m lease liability and a £4m bank overdraft. That is gross debt of £19,072.6m. Take off the £557.1m of cash and net debt is £18,515.5m, up £1,722m in a year as the company borrowed more to keep paying for its investment programme.

That is nearly five times its turnover of £3,756.5m. Not all the cash is freely usable either: £197.0m sits in a financing company and is available to Thames Water only with its creditors' consent.

Debt this size is expensive. Thames Water's interest cost before one-off items was £831.8m in the year: £22.14 of every £100 it billed customers. In cash it paid £609.3m of interest.

ITV ended 2025 with £868m of gross debt, including lease liabilities, and £302m of cash, giving reported net debt of £566m. That was up from £431m a year earlier, after spending on acquisitions, pensions and tax.

Against its turnover of £3,511m, ITV's net debt is about a sixth of a year's sales; Thames Water's is nearly five years'. ITV's finance costs were £59m, or £1.68 of every £100 of turnover, against Thames Water's £22.14.

ITV also quotes its leverage: net debt of 1.0 times its adjusted EBITDA (2024: 0.7 times).

Because the law does not define net debt, the UK accounting standard FRS 102 gives only a basic definition and the international standards give none, and lenders write their own definition into loan agreements. The result is often a second figure, usually called covenant net debt, used to test whether the company is keeping to its loan terms.

Thames Water's covenant net debt was £19,772m, against £18,515.5m on the statutory basis: the lenders' version leaves out accrued interest and some issue costs but includes some swap liabilities. ITV's covenant net debt was £477m, against £566m reported, partly because its lenders' definition leaves out £111m of lease liabilities.

So when you compare net debt between companies, or with a news report, check which version you are looking at and whether leases are in it.

Borrowings, lease liabilities and cash are all on the balance sheet (the statement of financial position). Borrowings appear twice: under current liabilities for amounts due within a year, and non-current liabilities for the rest. Add the two.

Larger companies usually print a net debt figure in the strategic report or financial review, and a note that reconciles it from one year to the next. The borrowings note lists each loan or bond, its interest rate and when it has to be repaid.

Interest is on the profit and loss account, as finance costs or interest payable, and the cash actually paid is in the cash flow statement. Small companies often file only a balance sheet. It shows how much they owe in total and, unless they are micro-entities, the cash they hold, though bank loans may not be shown apart from other debts.