Does Ossia International (SGX:O08) Have A Healthy 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Ossia International Limited (SGX:O08) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Ossia International

What Is Ossia International's Debt?

As you can see below, Ossia International had S$4.65m of debt at September 2020, down from S$7.69m a year prior. But it also has S$7.22m in cash to offset that, meaning it has S$2.56m net cash.

A Look At Ossia International's Liabilities

We can see from the most recent balance sheet that Ossia International had liabilities of S$13.0m falling due within a year, and liabilities of S$1.18m due beyond that. Offsetting this, it had S$7.22m in cash and S$3.21m in receivables that were due within 12 months. So it has liabilities totalling S$3.73m more than its cash and near-term receivables, combined.

Given Ossia International has a market capitalization of S$22.7m, 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. Despite its noteworthy liabilities, Ossia International boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Ossia International'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, Ossia International reported revenue of S$25m, which is a gain of 4.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Ossia International?

While Ossia International lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of S$2.7m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. Case in point: We've spotted 3 warning signs for Ossia International you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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