Is Optomed Oyj (HEL:OPTOMED) Using Too Much Debt?

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 Optomed Oyj (HEL:OPTOMED) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Optomed Oyj's Net Debt?

As you can see below, Optomed Oyj had €2.30m of debt at December 2024, down from €3.35m a year prior. But it also has €10.5m in cash to offset that, meaning it has €8.17m net cash.

How Healthy Is Optomed Oyj's Balance Sheet?

According to the last reported balance sheet, Optomed Oyj had liabilities of €5.58m due within 12 months, and liabilities of €2.56m due beyond 12 months. Offsetting these obligations, it had cash of €10.5m as well as receivables valued at €2.55m due within 12 months. So it actually has €4.87m more liquid assets than total liabilities.

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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Optomed Oyj can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Optomed Oyj

In the last year Optomed Oyj's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is Optomed Oyj?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Optomed Oyj had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €3.7m and booked a €5.5m accounting loss. But the saving grace is the €8.17m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Optomed Oyj is showing 2 warning signs in our investment analysis , you should know about...

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.

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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.