Net debtNet debt consists of loans and other borrowings (both current and non current), less current asset investments and cash and cash equivalents. Loans and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Currency denominated balances within net debt are translated to Sterling at swapped rates where hedged.
This definition of net debt measures balances at the expected value of future undiscounted cash flows due to arise on maturity of financial instruments and removes the balance sheet adjustments made from the re-measurement of hedged risks under fair value hedges and the use of the effective interest method as required by IAS 39. In addition, the gross balances are adjusted to take account of netting arrangements.
We consider net debt to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate of loans and other borrowings (current and non current), current asset investments and cash and cash equivalents. A reconciliation of net debt to this measure is included on note 10. We believe it is both useful and necessary to disclose net debt as it is a key measure against which our performance against our strategy is measured. We believe it is a measure of our net indebtedness that provides an indicator of our overall balance sheet strength. It is also a single measure that can be used to assess both our cash position and our indebtedness. There are material limitations in the use of alternative performance measures and our use of the term net debt does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure.