These 4 Measures Indicate That easyJet (LON:EZJ) Is Using Debt Reasonably Well

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. As with many other companies easyJet plc (LON:EZJ) makes use of debt. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is easyJet's Net Debt?

The image below, which you can click on for greater detail, shows that easyJet had debt of UK£1.88b at the end of September 2025, a reduction from UK£2.14b over a year. But on the other hand it also has UK£3.53b in cash, leading to a UK£1.65b net cash position.

How Healthy Is easyJet's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that easyJet had liabilities of UK£4.15b due within 12 months and liabilities of UK£3.86b due beyond that. On the other hand, it had cash of UK£3.53b and UK£445.0m worth of receivables due within a year. So its liabilities total UK£4.04b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of UK£3.65b, we think shareholders really should watch easyJet's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Given that easyJet has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

View our latest analysis for easyJet

And we also note warmly that easyJet grew its EBIT by 17% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if easyJet 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. easyJet may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, easyJet actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although easyJet's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of UK£1.65b. The cherry on top was that in converted 119% of that EBIT to free cash flow, bringing in UK£715m. So we are not troubled with easyJet's debt use. 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. To that end, you should be aware of the 1 warning sign we've spotted with easyJet .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.