Is Oncoclínicas do Brasil Serviços Médicos (BVMF:ONCO3) Using Debt In A Risky Way?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Oncoclínicas do Brasil Serviços Médicos S.A. (BVMF:ONCO3) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Oncoclínicas do Brasil Serviços Médicos Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Oncoclínicas do Brasil Serviços Médicos had debt of R$4.92b, up from R$4.37b in one year. However, because it has a cash reserve of R$1.66b, its net debt is less, at about R$3.26b.

How Strong Is Oncoclínicas do Brasil Serviços Médicos' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Oncoclínicas do Brasil Serviços Médicos had liabilities of R$2.33b due within 12 months and liabilities of R$5.26b due beyond that. On the other hand, it had cash of R$1.66b and R$2.16b worth of receivables due within a year. So its liabilities total R$3.77b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of R$3.35b, we think shareholders really should watch Oncoclínicas do Brasil Serviços Médicos's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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 Oncoclínicas do Brasil Serviços Médicos'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.

See our latest analysis for Oncoclínicas do Brasil Serviços Médicos

In the last year Oncoclínicas do Brasil Serviços Médicos wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to R$6.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Oncoclínicas do Brasil Serviços Médicos produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at R$237m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of R$332m over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Oncoclínicas do Brasil Serviços Médicos that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.