Is OPUS GLOBAL Nyrt (BUSE:OPUS) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that OPUS GLOBAL Nyrt. (BUSE:OPUS) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for OPUS GLOBAL Nyrt

How Much Debt Does OPUS GLOBAL Nyrt Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 OPUS GLOBAL Nyrt had Ft146.5b of debt, an increase on Ft128.2b, over one year. However, because it has a cash reserve of Ft127.9b, its net debt is less, at about Ft18.5b.

How Strong Is OPUS GLOBAL Nyrt's Balance Sheet?

According to the last reported balance sheet, OPUS GLOBAL Nyrt had liabilities of Ft160.4b due within 12 months, and liabilities of Ft172.1b due beyond 12 months. Offsetting these obligations, it had cash of Ft127.9b as well as receivables valued at Ft50.4b due within 12 months. So it has liabilities totalling Ft154.1b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of Ft162.3b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 Ft225b, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months OPUS GLOBAL Nyrt produced an earnings before interest and tax (EBIT) loss. Indeed, it lost Ft1.3b 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. For example, we would not want to see a repeat of last year's loss of Ft8.8b. In the meantime, we consider the stock very risky. 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. For example, we've discovered 1 warning sign for OPUS GLOBAL Nyrt that you should be aware of before investing here.

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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