Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Asana, Inc. (NYSE:ASAN) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Asana Carry?
You can click the graphic below for the historical numbers, but it shows that Asana had US$43.6m of debt in January 2024, down from US$46.7m, one year before. However, its balance sheet shows it holds US$519.5m in cash, so it actually has US$475.8m net cash.
A Look At Asana's Liabilities
The latest balance sheet data shows that Asana had liabilities of US$367.2m due within a year, and liabilities of US$268.4m falling due after that. Offsetting these obligations, it had cash of US$519.5m as well as receivables valued at US$88.3m due within 12 months. So its liabilities total US$27.8m more than the combination of its cash and short-term receivables.
This state of affairs indicates that Asana's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$3.40b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Asana boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Asana can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Asana reported revenue of US$653m, which is a gain of 19%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Asana?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Asana lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$31m of cash and made a loss of US$257m. While this does make the company a bit risky, it's important to remember it has net cash of US$475.8m. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Asana is showing 3 warning signs in our investment analysis , you should know about...
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.