How do I Calculate net interest-bearing debt from balance sheets?

Question

I'm reading The Little Book That Still Beats The Market by Joel Greenblatt, and quote

Earnings yield was measured by calculating the ratio of pretax operating earnings (EBIT) to enterprise value (market value of equity + net interest-bearing debt).

To calculate values for all stocks I need to understand what is net interest-bearing debt. But I couldn't find the exact term on google, only terms like Net Debt or Interest-bearing Debt, but not Net Interest-bearing debt.

How can I calculate that value from the balance sheets?

Answer 1

A more common formula for Enterprise Value is

Market Value of Equity + Total Debt - Cash

, which is equivalent to

Market Value of Equity + Net Debt

Since Net Debt typically includes only pure "debt", not other liabilities like payables. The author seems to just be a bit more precise by calling it "Interest-Bearing Debt" to exclude those other liabilities.

So you could look at the values for "Net Debt" and see if they include liabilities or not, and adjust accordingly.

Most aggregators will also have "Enterprise Value" if you want to just jump to that.

It's important, however, to not take aggregated numbers from Google/Yahoo, etc. as truth. They are fine to use as screens, but if you need a precise measure of NIBD, you'd have to verify it against the company's actual balance sheet, which means that you'll have to understand exactly what makes up NIBD to know what to include (or exclude) from the balance sheet.