Is Redox (ASX:RDX) A Risky Investment?

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.' 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, Redox Limited (ASX:RDX) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Redox's Net Debt?

As you can see below, Redox had AU$13.9m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds AU$123.8m in cash, so it actually has AU$110.0m net cash.

How Strong Is Redox's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Redox had liabilities of AU$156.1m due within 12 months and liabilities of AU$31.9m due beyond that. On the other hand, it had cash of AU$123.8m and AU$206.6m worth of receivables due within a year. So it can boast AU$142.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Redox could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Redox boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Redox

But the bad news is that Redox has seen its EBIT plunge 11% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 Redox can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Redox 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, Redox recorded free cash flow worth 77% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Redox has net cash of AU$110.0m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of AU$43m, being 77% of its EBIT. So is Redox's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Redox .

Of course, if you're the type of investor who prefers buying 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 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.