Does Optomed Oyj (HEL:OPTOMED) Have A Healthy Balance Sheet?

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.' 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. We note that Optomed Oyj (HEL:OPTOMED) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Optomed Oyj

What Is Optomed Oyj's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Optomed Oyj had €2.89m of debt in June 2024, down from €4.81m, one year before. However, it does have €12.1m in cash offsetting this, leading to net cash of €9.22m.

A Look At Optomed Oyj's Liabilities

According to the last reported balance sheet, Optomed Oyj had liabilities of €5.50m due within 12 months, and liabilities of €2.84m due beyond 12 months. Offsetting these obligations, it had cash of €12.1m as well as receivables valued at €2.59m due within 12 months. So it can boast €6.36m more liquid assets than total liabilities.

This short term liquidity is a sign that Optomed Oyj could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Optomed Oyj has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Optomed Oyj'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.

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

So How Risky Is Optomed Oyj?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Optomed Oyj had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €3.0m and booked a €4.9m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of €9.22m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the 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. To that end, you should learn about the 3 warning signs we've spotted with Optomed Oyj (including 1 which is significant) .

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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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.