What is Net Debt Per Capita?
Net debt per capita is a government's total debt (less cash on hand) per person.
How Does Net Debt Per Capita Work?
The formula for net debt per capita is:
Net Debt per Capita = (Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents) / Population
For example, let's assume that Country XYZ has $100 billion in short-term debt, $400 billion in long-term debt, $10 billion in cash and cash equivalents, and 250 million people. According to the formula, Country XYZ's net debt per capita is:
Net Debt Per Capita = ($100 billion + $400 billion - $10 billion)/250,000,000 = $1,960
Why Does Net Debt Per Capita Matter?
Net debt per capita is a measure of a government's ability to repay its debts if they were all due today. The government may be a municipality, a county, or a national government. This measure helps analysts and investors get a better feel for whether a country is over- or underleveraged -- that is, whether a country can "afford" its debt, whether it needs to raise its tax revenue, or whether it might default. The measure may affect the credit rating of the government's debt, consequently. Governments with large amounts of debt but also large cash positions are generally in better positions to weather situations that may be particularly sensitive for its debt -- interest rate fluctuations, for example.
To learn more about government debt, click here to read about Four Giant U.S. States that Are About to Go Bankrupt.
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