Brief Definition
Net Financial Obligations (NFO) refer to the total amount of financial liabilities a company owes, minus its liquid financial assets.
Further Explanation
Net Financial Obligations (NFO) refer to the total amount of financial liabilities a company owes, minus its liquid financial assets. This measure provides an understanding of the company’s financial health by showing how much debt the company has relative to its liquid assets, which can be quickly used to meet its obligations.
NFO = Total Financial Liabilities – Liquied Financial Assets
Example:
Company X has total financial liabilities of $10 million, which include long-term debt and bonds. It also has $3 million in liquid financial assets, such as cash and marketable securities. The NFO for Company X would be:
NFO = $10 m – $3 m = $7 m