Warren Buffett famously said, '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. We can see that Asana, Inc. (NYSE:ASAN) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Asana's Net Debt?

As you can see below, Asana had US$39.9m of debt at October 2024, down from US$44.9m a year prior. However, its balance sheet shows it holds US$455.3m in cash, so it actually has US$415.4m net cash.

How Healthy Is Asana's Balance Sheet?

The latest balance sheet data shows that Asana had liabilities of US$383.0m due within a year, and liabilities of US$251.9m falling due after that. Offsetting these obligations, it had cash of US$455.3m as well as receivables valued at US$66.9m due within 12 months. So it has liabilities totalling US$112.7m more than its cash and near-term receivables, combined.

Given Asana has a market capitalization of US$5.06b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Asana also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Asana wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$707m. 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 the fact is that over the last twelve months Asana lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$27m of cash and made a loss of US$256m. But the saving grace is the US$415.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 4 warning signs for Asana you should be aware of.

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.