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.' 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 Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Rigel Pharmaceuticals's Net Debt?

The image below, which you can click on for greater detail, shows that Rigel Pharmaceuticals had debt of US$59.7m at the end of September 2025, a reduction from US$99.7m over a year. But it also has US$137.1m in cash to offset that, meaning it has US$77.4m net cash.

A Look At Rigel Pharmaceuticals' Liabilities

According to the last reported balance sheet, Rigel Pharmaceuticals had liabilities of US$94.4m due within 12 months, and liabilities of US$30.5m due beyond 12 months. On the other hand, it had cash of US$137.1m and US$45.9m worth of receivables due within a year. So it actually has US$58.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Rigel Pharmaceuticals could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Rigel Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Rigel Pharmaceuticals grew its EBIT by 1,152% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Rigel Pharmaceuticals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Rigel Pharmaceuticals 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. During the last two years, Rigel Pharmaceuticals produced sturdy free cash flow equating to 61% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Rigel Pharmaceuticals has net cash of US$77.4m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 1,152% over the last year. So we don't think Rigel Pharmaceuticals's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.