Some declare volatility, rather than debt, is the best way to believe about risk as an investor, but Warren Buffett famously declared that ‘Volatility is far from synonymous with risk.’ When we believe about how risky a company is, we always like to see at its utilize of debt, since debt overload can lead to ruin. We note that Ashtead Group plc (LON:AHT) does have debt on its balance sheet. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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. If things receive really bad, the lfinishers can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies utilize debt to fund growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt toreceiveher.
What Is Ashtead Group’s Net Debt?
As you can see below, Ashtead Group had US$7.68b of debt at October 2025, down from US$8.19b a year prior. Net debt is about the same, since the it doesn’t have much cash.
How Healthy Is Ashtead Group’s Balance Sheet?
We can see from the most recent balance sheet that Ashtead Group had liabilities of US$1.86b falling due within a year, and liabilities of US$12.8b due beyond that. Offsetting these obligations, it had cash of US$39.6m as well as receivables valued at US$2.18b due within 12 months. So its liabilities total US$12.4b more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Ashtead Group has a huge market capitalization of US$29.5b, and so it could probably strengthen its balance sheet by raising capital if it necessaryed to. However, it is still worthwhile taking a close see at its ability to pay off debt.
See our latest analysis for Ashtead Group
We utilize two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Ashtead Group’s net debt is sitting at a very reasonable 1.6 times its EBITDA, while its EBIT covered its interest expense just 4.6 times last year. While these numbers do not alarm us, it’s worth noting that the cost of the company’s debt is having a real impact. Sadly, Ashtead Group’s EBIT actually dropped 5.3% in the last year. If that earnings trfinish continues then its debt load will grow heavy like the heart of a polar bear watching its sole cub. 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 Ashtead Group’s ability to maintain a healthy balance sheet going forward. So if you’re focutilized on the future you can check out this free report revealing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lfinishers only accept cold hard cash. So it’s worth checking how much of that EBIT is backed by free cash flow. In the last three years, Ashtead Group’s free cash flow amounted to 42% of its EBIT, less than we’d expect. That’s not great, when it comes to paying down debt.
Our View
Both Ashtead Group’s EBIT growth rate and its interest cover were discouraging. But its not so bad at managing its debt, based on its EBITDA,. Looking at all the angles mentioned above, it does seem to us that Ashtead Group is a somewhat risky investment as a result of its debt. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We’ve identified 1 warning sign with Ashtead Group , and understanding them should be part of your investment process.
Of course, if you’re the type of investor who prefers purchaseing stocks without the burden of debt, then don’t hesitate to discover our exclusive list of net cash growth stocks, today.
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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 utilizing an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
