Opsens (TSE:OPS) Has Debt But No Earnings; Should You Worry?

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

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Opsens

How Much Debt Does Opsens Carry?

As you can see below, at the end of February 2021, Opsens had CA$8.74m of debt, up from CA$8.20m a year ago. Click the image for more detail. However, its balance sheet shows it holds CA$39.3m in cash, so it actually has CA$30.6m net cash.

A Look At Opsens' Liabilities

According to the last reported balance sheet, Opsens had liabilities of CA$7.09m due within 12 months, and liabilities of CA$10.4m due beyond 12 months. Offsetting these obligations, it had cash of CA$39.3m as well as receivables valued at CA$5.49m due within 12 months. So it actually has CA$27.3m more liquid assets than total liabilities.

This surplus suggests that Opsens has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Opsens boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Opsens'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.

In the last year Opsens's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is Opsens?

While Opsens lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CA$1.2m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. To that end, you should be aware of the 3 warning signs we've spotted with Opsens .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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