Health Check: How Prudently Does OPUS GLOBAL Nyrt (BUSE:OPUS) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 OPUS GLOBAL Nyrt. (BUSE:OPUS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for OPUS GLOBAL Nyrt

What Is OPUS GLOBAL Nyrt's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 OPUS GLOBAL Nyrt had Ft301.2b of debt, an increase on Ft141.2b, over one year. However, because it has a cash reserve of Ft130.7b, its net debt is less, at about Ft170.5b.

How Strong Is OPUS GLOBAL Nyrt's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that OPUS GLOBAL Nyrt had liabilities of Ft188.4b due within 12 months and liabilities of Ft353.7b due beyond that. On the other hand, it had cash of Ft130.7b and Ft87.6b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by Ft323.9b.

The deficiency here weighs heavily on the Ft153.4b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, OPUS GLOBAL Nyrt would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is OPUS GLOBAL Nyrt's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, OPUS GLOBAL Nyrt reported revenue of Ft257b, which is a gain of 62%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate OPUS GLOBAL Nyrt's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at Ft1.9b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through Ft70b in negative free cash flow over the last year. That means it's on the risky side of things. 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. We've identified 2 warning signs with OPUS GLOBAL Nyrt , and understanding them should be part of your investment process.

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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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.