Does Asana (NYSE:ASAN) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Asana, Inc. (NYSE:ASAN) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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.

Check out our latest analysis for Asana

What Is Asana's Net Debt?

As you can see below, Asana had US$47.0m of debt, at April 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$524.3m in cash, leading to a US$477.3m net cash position.

A Look At Asana's Liabilities

We can see from the most recent balance sheet that Asana had liabilities of US$393.5m falling due within a year, and liabilities of US$264.8m due beyond that. On the other hand, it had cash of US$524.3m and US$99.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$34.2m.

Having regard to Asana's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$3.29b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Asana boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Asana's ability to maintain a healthy balance sheet going forward. 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$673m, which is a gain of 16%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Asana?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Asana had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$18m of cash and made a loss of US$259m. While this does make the company a bit risky, it's important to remember it has net cash of US$477.3m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Asana you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com