Oponeo.pl (WSE:OPN) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Oponeo.pl S.A. (WSE:OPN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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, 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 Oponeo.pl

What Is Oponeo.pl's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Oponeo.pl had zł15.8m of debt, an increase on none, over one year. But it also has zł54.5m in cash to offset that, meaning it has zł38.7m net cash.

A Look At Oponeo.pl's Liabilities

We can see from the most recent balance sheet that Oponeo.pl had liabilities of zł235.8m falling due within a year, and liabilities of zł7.41m due beyond that. Offsetting these obligations, it had cash of zł54.5m as well as receivables valued at zł29.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł159.8m.

Oponeo.pl has a market capitalization of zł487.8m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Oponeo.pl also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also positive, Oponeo.pl grew its EBIT by 22% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Oponeo.pl will need earnings to service that debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Oponeo.pl has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Oponeo.pl recorded free cash flow worth a fulsome 92% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing up

Although Oponeo.pl's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of zł38.7m. And it impressed us with free cash flow of zł63m, being 92% of its EBIT. So we don't think Oponeo.pl's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Oponeo.pl, you may well want to click here to check an interactive graph of its earnings per share history.

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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