We Think Ryanair Holdings (ISE:RYA) Can Stay On Top Of Its Debt

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Ryanair Holdings plc (ISE:RYA) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Ryanair Holdings

How Much Debt Does Ryanair Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that Ryanair Holdings had €2.58b of debt in June 2024, down from €3.66b, one year before. However, its balance sheet shows it holds €4.48b in cash, so it actually has €1.90b net cash.

How Strong Is Ryanair Holdings' Balance Sheet?

According to the last reported balance sheet, Ryanair Holdings had liabilities of €7.01b due within 12 months, and liabilities of €3.18b due beyond 12 months. Offsetting these obligations, it had cash of €4.48b as well as receivables valued at €100.5m due within 12 months. So its liabilities total €5.61b more than the combination of its cash and short-term receivables.

Ryanair Holdings has a very large market capitalization of €16.8b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Ryanair Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

On the other hand, Ryanair Holdings's EBIT dived 10%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Ryanair Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Ryanair Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Ryanair Holdings recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

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 €1.90b. And it impressed us with free cash flow of €1.2b, being 94% of its EBIT. So we don't have any problem with Ryanair Holdings's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Ryanair Holdings is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

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.