Here's Why Onward Medical (EBR:ONWD) Can Manage Its Debt Despite Losing Money

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Onward Medical N.V. (EBR:ONWD) makes use of debt. But should shareholders be worried about its use of debt?

We've discovered 4 warning signs about Onward Medical. View them for free.

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Onward Medical's Debt?

The image below, which you can click on for greater detail, shows that Onward Medical had debt of €14.0m at the end of December 2024, a reduction from €15.3m over a year. However, its balance sheet shows it holds €60.0m in cash, so it actually has €46.1m net cash.

How Strong Is Onward Medical's Balance Sheet?

According to the last reported balance sheet, Onward Medical had liabilities of €9.29m due within 12 months, and liabilities of €18.8m due beyond 12 months. Offsetting these obligations, it had cash of €60.0m as well as receivables valued at €1.04m due within 12 months. So it actually has €33.0m more liquid assets than total liabilities.

It's good to see that Onward Medical has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Onward Medical boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Onward Medical's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Onward Medical

In the last year Onward Medical wasn't profitable at an EBIT level, but managed to grow its revenue by 227%, to €1.7m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Onward Medical?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Onward Medical had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €32m and booked a €36m accounting loss. But at least it has €46.1m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Onward Medical 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. 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. For instance, we've identified 4 warning signs for Onward Medical that you should be aware of.

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.