Is ASOS (LON:ASC) Using Debt In A Risky Way?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies ASOS Plc (LON:ASC) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is ASOS's Net Debt?

You can click the graphic below for the historical numbers, but it shows that ASOS had UK£496.5m of debt in March 2025, down from UK£681.1m, one year before. However, it also had UK£220.7m in cash, and so its net debt is UK£275.8m.

A Look At ASOS' Liabilities

The latest balance sheet data shows that ASOS had liabilities of UK£605.3m due within a year, and liabilities of UK£790.0m falling due after that. Offsetting this, it had UK£220.7m in cash and UK£71.5m in receivables that were due within 12 months. So its liabilities total UK£1.10b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the UK£429.7m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, ASOS would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ASOS 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.

See our latest analysis for ASOS

Over 12 months, ASOS made a loss at the EBIT level, and saw its revenue drop to UK£2.7b, which is a fall of 16%. We would much prefer see growth.

Caveat Emptor

While ASOS's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable UK£295m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost UK£294m in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with ASOS , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.