Does Optiemus Infracom (NSE:OPTIEMUS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Optiemus Infracom Limited (NSE:OPTIEMUS) 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 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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Optiemus Infracom

What Is Optiemus Infracom's Net Debt?

The image below, which you can click on for greater detail, shows that Optiemus Infracom had debt of ₹2.27b at the end of March 2020, a reduction from ₹2.63b over a year. On the flip side, it has ₹261.4m in cash leading to net debt of about ₹2.00b.

How Healthy Is Optiemus Infracom's Balance Sheet?

We can see from the most recent balance sheet that Optiemus Infracom had liabilities of ₹1.55b falling due within a year, and liabilities of ₹1.85b due beyond that. Offsetting this, it had ₹261.4m in cash and ₹2.54b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹606.0m.

Given Optiemus Infracom has a market capitalization of ₹4.29b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Optiemus Infracom's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Optiemus Infracom made a loss at the EBIT level, and saw its revenue drop to ₹3.7b, which is a fall of 69%. That makes us nervous, to say the least.

Caveat Emptor

While Optiemus Infracom's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable ₹608.1m 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₹848.5m into a profit. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Optiemus Infracom (including 1 which is is potentially serious) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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