Is Optomed Oyj (HEL:OPTOMED) A Risky Investment? – Yahoo Finance

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 note that Optomed Oyj (HEL:OPTOMED) does have debt on its balance sheet. But is this debt a concern to shareholders?” data-reactid=”28″>Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘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 note that Optomed Oyj (HEL:OPTOMED) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=" See our latest analysis for Optomed Oyj ” data-reactid=”31″> See our latest analysis for Optomed Oyj

What Is Optomed Oyj’s Debt?

As you can see below, Optomed Oyj had €9.93m of debt at December 2019, down from €10.9m a year prior. But on the other hand it also has €18.9m in cash, leading to a €8.94m net cash position.

A Look At Optomed Oyj’s Liabilities

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We can see from the most recent balance sheet that Optomed Oyj had liabilities of €7.56m falling due within a year, and liabilities of €9.42m due beyond that. Offsetting these obligations, it had cash of €18.9m as well as receivables valued at €4.13m due within 12 months. So it can boast €6.02m more liquid assets than total liabilities.” data-reactid=”47″>We can see from the most recent balance sheet that Optomed Oyj had liabilities of €7.56m falling due within a year, and liabilities of €9.42m due beyond that. Offsetting these obligations, it had cash of €18.9m as well as receivables valued at €4.13m due within 12 months. So it can boast €6.02m more liquid assets than total liabilities.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This short term liquidity is a sign that Optomed Oyj could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Optomed Oyj has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Optomed Oyj 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.” data-reactid=”48″>This short term liquidity is a sign that Optomed Oyj could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Optomed Oyj has more cash than debt is arguably a good indication that it can manage its debt safely. There’s no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Optomed Oyj 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.

Over 12 months, Optomed Oyj reported revenue of €15m, which is a gain of 18%, 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 Optomed Oyj?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Optomed Oyj had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of €1.3m and booked a €2.9m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of €8.94m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. For example, we've discovered 4 warning signs for Optomed Oyj that you should be aware of before investing here.” data-reactid=”51″>We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Optomed Oyj had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of €1.3m and booked a €2.9m accounting loss. While this does make the company a bit risky, it’s important to remember it has net cash of €8.94m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn’t produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. For example, we’ve discovered 4 warning signs for Optomed Oyj that you should be aware of before investing here.