Is Opsens (TSE:OPS) Weighed On By Its Debt Load?

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 Opsens Inc. (TSE:OPS) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

See our latest analysis for Opsens

What Is Opsens's Debt?

The chart below, which you can click on for greater detail, shows that Opsens had CA$8.56m in debt in November 2020; about the same as the year before. However, its balance sheet shows it holds CA$12.2m in cash, so it actually has CA$3.59m net cash.

How Healthy Is Opsens' Balance Sheet?

We can see from the most recent balance sheet that Opsens had liabilities of CA$6.72m falling due within a year, and liabilities of CA$10.6m due beyond that. Offsetting this, it had CA$12.2m in cash and CA$4.34m in receivables that were due within 12 months. So it has liabilities totalling CA$791.2k more than its cash and near-term receivables, combined.

This state of affairs indicates that Opsens' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CA$163.2m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Opsens also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Opsens can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Opsens saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Opsens?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Opsens had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$826k of cash and made a loss of CA$179k. But at least it has CA$3.59m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 1 warning sign for Opsens that you should be aware of.

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.

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