Is Optomed Oyj (HEL:OPTOMED) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Optomed Oyj (HEL:OPTOMED) does carry debt. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Optomed Oyj

What Is Optomed Oyj's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Optomed Oyj had debt of €7.02m, up from €6.52m in one year. However, it does have €6.80m in cash offsetting this, leading to net debt of about €213.0k.

How Strong Is Optomed Oyj's Balance Sheet?

We can see from the most recent balance sheet that Optomed Oyj had liabilities of €4.91m falling due within a year, and liabilities of €7.03m due beyond that. Offsetting these obligations, it had cash of €6.80m as well as receivables valued at €3.82m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.32m.

This state of affairs indicates that Optomed Oyj's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €68.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, Optomed Oyj has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Optomed Oyj 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.

In the last year Optomed Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to €15m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Optomed Oyj had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €4.7m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €5.5m 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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Optomed Oyj that you should be aware of before investing here.

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.

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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.