Is Rivian Automotive (NASDAQ:RIVN) A Risky Investment?

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.' 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, Rivian Automotive, Inc. (NASDAQ:RIVN) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Rivian Automotive

What Is Rivian Automotive's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Rivian Automotive had US$5.47b of debt, an increase on US$2.72b, over one year. However, it does have US$6.74b in cash offsetting this, leading to net cash of US$1.27b.

How Healthy Is Rivian Automotive's Balance Sheet?

The latest balance sheet data shows that Rivian Automotive had liabilities of US$1.93b due within a year, and liabilities of US$6.43b falling due after that. Offsetting these obligations, it had cash of US$6.74b as well as receivables valued at US$217.0m due within 12 months. So its liabilities total US$1.41b more than the combination of its cash and short-term receivables.

Since publicly traded Rivian Automotive shares are worth a very impressive total of US$14.1b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Rivian Automotive boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Rivian Automotive can strengthen its balance sheet over time. 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 Rivian Automotive wasn't profitable at an EBIT level, but managed to grow its revenue by 20%, to US$4.6b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Rivian Automotive?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Rivian Automotive had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$5.1b of cash and made a loss of US$5.5b. However, it has net cash of US$1.27b, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Rivian Automotive may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Rivian Automotive you should know about.

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.