Does Rafael Holdings (NYSE:RFL) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that Rafael Holdings, Inc. (NYSE:RFL) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Rafael Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of January 2025 Rafael Holdings had US$2.39m of debt, an increase on US$1.70m, over one year. But on the other hand it also has US$48.3m in cash, leading to a US$45.9m net cash position.

How Strong Is Rafael Holdings' Balance Sheet?

We can see from the most recent balance sheet that Rafael Holdings had liabilities of US$7.11m falling due within a year, and liabilities of US$3.37m due beyond that. On the other hand, it had cash of US$48.3m and US$16.8m worth of receivables due within a year. So it can boast US$54.6m more liquid assets than total liabilities.

This excess liquidity is a great indication that Rafael Holdings' balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Rafael Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Rafael Holdings will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Rafael Holdings

Given it has no significant operating revenue at the moment, shareholders will be hoping Rafael Holdings can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is Rafael Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Rafael Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$8.3m of cash and made a loss of US$50m. But the saving grace is the US$45.9m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Rafael Holdings has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. For example Rafael Holdings has 3 warning signs (and 2 which are a bit unpleasant) we think 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.