Is RLX Technology (NYSE:RLX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that RLX Technology Inc. (NYSE:RLX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does RLX Technology Carry?

As you can see below, RLX Technology had CN¥40.0m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has CN¥8.49b in cash, leading to a CN¥8.45b net cash position.

How Healthy Is RLX Technology's Balance Sheet?

We can see from the most recent balance sheet that RLX Technology had liabilities of CN¥857.9m falling due within a year, and liabilities of CN¥23.2m due beyond that. On the other hand, it had cash of CN¥8.49b and CN¥429.3m worth of receivables due within a year. So it actually has CN¥8.04b more liquid assets than total liabilities.

This excess liquidity is a great indication that RLX Technology's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, RLX Technology 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 ultimately the future profitability of the business will decide if RLX Technology 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.

Check out our latest analysis for RLX Technology

Over 12 months, RLX Technology reported revenue of CN¥2.4b, which is a gain of 96%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is RLX Technology?

Although RLX Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥552m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We think its revenue growth of 96% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - RLX Technology has 1 warning sign we think 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.