OPKO Health (NASDAQ:OPK) Is Carrying A Fair Bit Of Debt

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 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. We note that OPKO Health, Inc. (NASDAQ:OPK) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

We've discovered 1 warning sign about OPKO Health. View them for free.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is OPKO Health's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 OPKO Health had debt of US$437.2m, up from US$249.3m in one year. On the flip side, it has US$426.6m in cash leading to net debt of about US$10.6m.

A Look At OPKO Health's Liabilities

Zooming in on the latest balance sheet data, we can see that OPKO Health had liabilities of US$193.1m due within 12 months and liabilities of US$641.7m due beyond that. Offsetting these obligations, it had cash of US$426.6m as well as receivables valued at US$128.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$279.9m.

OPKO Health has a market capitalization of US$940.2m, 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. Carrying virtually no net debt, OPKO Health has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if OPKO Health can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for OPKO Health

Over 12 months, OPKO Health made a loss at the EBIT level, and saw its revenue drop to US$713m, which is a fall of 17%. That's not what we would hope to see.

Caveat Emptor

Not only did OPKO Health's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping US$274m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$208m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with OPKO Health , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.