Health Check: How Prudently Does RLF AgTech (ASX:RLF) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, RLF AgTech Ltd (ASX:RLF) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does RLF AgTech Carry?

As you can see below, RLF AgTech had AU$3.91m of debt at June 2025, down from AU$4.56m a year prior. But it also has AU$6.54m in cash to offset that, meaning it has AU$2.63m net cash.

A Look At RLF AgTech's Liabilities

Zooming in on the latest balance sheet data, we can see that RLF AgTech had liabilities of AU$13.5m due within 12 months and liabilities of AU$5.09m due beyond that. On the other hand, it had cash of AU$6.54m and AU$1.55m worth of receivables due within a year. So its liabilities total AU$10.5m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since RLF AgTech has a market capitalization of AU$25.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, RLF AgTech 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 RLF AgTech's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for RLF AgTech

Over 12 months, RLF AgTech reported revenue of AU$23m, which is a gain of 137%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is RLF AgTech?

Although RLF AgTech had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of AU$908k. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. One positive is that RLF AgTech is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. 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. Case in point: We've spotted 4 warning signs for RLF AgTech you should be aware of, and 1 of them is concerning.

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.