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Is OptiNose (NASDAQ:OPTN) Using Too Much Debt?

Simply Wall St

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. We note that OptiNose, Inc. (NASDAQ:OPTN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for OptiNose

How Much Debt Does OptiNose Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2020 OptiNose had US$104.9m of debt, an increase on US$72.9m, over one year. But on the other hand it also has US$125.3m in cash, leading to a US$20.3m net cash position.

debt-equity-history-analysis
debt-equity-history-analysis

How Healthy Is OptiNose's Balance Sheet?

According to the last reported balance sheet, OptiNose had liabilities of US$34.9m due within 12 months, and liabilities of US$105.5m due beyond 12 months. Offsetting these obligations, it had cash of US$125.3m as well as receivables valued at US$14.1m due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that OptiNose's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$317.3m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, OptiNose also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine OptiNose's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year OptiNose wasn't profitable at an EBIT level, but managed to grow its revenue by 152%, to US$41m. So there's no doubt that shareholders are cheering for growth

So How Risky Is OptiNose?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year OptiNose had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$85.2m of cash and made a loss of US$108.5m. However, it has net cash of US$20.3m, so it has a bit of time before it will need more capital. Importantly, OptiNose's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with OptiNose , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

This article by Simply Wall St is general in nature. 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.

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