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. Importantly, Rocket Lab USA, Inc. (NASDAQ:RKLB) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Rocket Lab USA's Debt?

As you can see below, at the end of September 2024, Rocket Lab USA had US$403.5m of debt, up from US$105.1m a year ago. Click the image for more detail. However, it does have US$442.4m in cash offsetting this, leading to net cash of US$38.9m.

How Strong Is Rocket Lab USA's Balance Sheet?

We can see from the most recent balance sheet that Rocket Lab USA had liabilities of US$269.2m falling due within a year, and liabilities of US$464.0m due beyond that. Offsetting these obligations, it had cash of US$442.4m as well as receivables valued at US$83.0m due within 12 months. So its liabilities total US$207.8m more than the combination of its cash and short-term receivables.

Having regard to Rocket Lab USA's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$13.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Rocket Lab USA also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Rocket Lab USA 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.

Over 12 months, Rocket Lab USA reported revenue of US$364m, which is a gain of 54%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Rocket Lab USA?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Rocket Lab USA had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$145m and booked a US$188m accounting loss. But the saving grace is the US$38.9m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Rocket Lab USA may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Rocket Lab USA is showing 3 warning signs in our investment analysis , you should know about...

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.