Is RLX Technology (NYSE:RLX) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies RLX Technology Inc. (NYSE:RLX) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 RLX Technology had CN¥113.3m of debt, an increase on none, over one year. But on the other hand it also has CN¥8.47b in cash, leading to a CN¥8.36b net cash position.

How Strong Is RLX Technology's Balance Sheet?

We can see from the most recent balance sheet that RLX Technology had liabilities of CN¥1.03b falling due within a year, and liabilities of CN¥209.3m due beyond that. On the other hand, it had cash of CN¥8.47b and CN¥353.0m worth of receivables due within a year. So it can boast CN¥7.58b 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. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, RLX Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for RLX Technology

It was also good to see that despite losing money on the EBIT line last year, RLX Technology turned things around in the last 12 months, delivering and EBIT of CN¥198m. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. RLX Technology may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, RLX Technology actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that RLX Technology has net cash of CN¥8.36b, as well as more liquid assets than liabilities. The cherry on top was that in converted 646% of that EBIT to free cash flow, bringing in CN¥1.3b. So is RLX Technology's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 1 warning sign for RLX Technology that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.