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.' 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. We can see that Roblox Corporation (NYSE:RBLX) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Roblox Carry?

The chart below, which you can click on for greater detail, shows that Roblox had US$1.01b in debt in December 2024; about the same as the year before. However, its balance sheet shows it holds US$2.41b in cash, so it actually has US$1.40b net cash.

A Look At Roblox's Liabilities

The latest balance sheet data shows that Roblox had liabilities of US$3.66b due within a year, and liabilities of US$3.30b falling due after that. On the other hand, it had cash of US$2.41b and US$634.5m worth of receivables due within a year. So it has liabilities totalling US$3.92b more than its cash and near-term receivables, combined.

Given Roblox has a humongous market capitalization of US$39.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Roblox 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 it is future earnings, more than anything, that will determine Roblox's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Roblox

In the last year Roblox wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to US$3.6b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Roblox?

Although Roblox had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$641m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Roblox shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. 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. We've identified 2 warning signs with Roblox , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.