Is Optimi Health (CSE:OPTI) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, Optimi Health Corp. (CSE:OPTI) does carry debt. But the real question is whether this debt is making the company risky.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Optimi Health's Net Debt?

As you can see below, at the end of March 2025, Optimi Health had CA$2.82m of debt, up from CA$2.61m a year ago. Click the image for more detail. Net debt is about the same, since the it doesn't have much cash.

A Look At Optimi Health's Liabilities

The latest balance sheet data shows that Optimi Health had liabilities of CA$3.26m due within a year, and liabilities of CA$1.82m falling due after that. Offsetting these obligations, it had cash of CA$55.7k as well as receivables valued at CA$88.1k due within 12 months. So its liabilities total CA$4.93m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Optimi Health has a market capitalization of CA$17.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Optimi Health will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Optimi Health

Given it has no significant operating revenue at the moment, shareholders will be hoping Optimi Health can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Over the last twelve months Optimi Health produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CA$5.0m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$2.3m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. Be aware that Optimi Health is showing 5 warning signs in our investment analysis , and 3 of those can't be ignored...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.