Here's Why Ryanair Holdings (ISE:RYA) Can Manage Its Debt Responsibly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Ryanair Holdings plc (ISE:RYA) makes use of debt. But the real question is whether this debt is making the company risky.

We check all companies for important risks. See what we found for Ryanair Holdings in our free report.

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. 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.

How Much Debt Does Ryanair Holdings Carry?

As you can see below, Ryanair Holdings had €2.53b of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds €2.75b in cash, so it actually has €216.3m net cash.

How Healthy Is Ryanair Holdings' Balance Sheet?

We can see from the most recent balance sheet that Ryanair Holdings had liabilities of €5.65b falling due within a year, and liabilities of €2.55b due beyond that. Offsetting this, it had €2.75b in cash and €56.6m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €5.40b.

Ryanair Holdings has a very large market capitalization of €21.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Ryanair Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Ryanair Holdings

The modesty of its debt load may become crucial for Ryanair Holdings if management cannot prevent a repeat of the 21% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. 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 Ryanair Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Ryanair Holdings 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 most recent three years, Ryanair Holdings recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Ryanair Holdings's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €216.3m. So we don't have any problem with Ryanair Holdings's use of debt. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that Ryanair Holdings insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

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.