Does Opiant Pharmaceuticals (NASDAQ:OPNT) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 Opiant Pharmaceuticals, Inc. (NASDAQ:OPNT) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Opiant Pharmaceuticals

What Is Opiant Pharmaceuticals's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Opiant Pharmaceuticals had debt of US$18.9m, up from none in one year. But it also has US$50.3m in cash to offset that, meaning it has US$31.4m net cash.

A Look At Opiant Pharmaceuticals' Liabilities

Zooming in on the latest balance sheet data, we can see that Opiant Pharmaceuticals had liabilities of US$7.35m due within 12 months and liabilities of US$19.6m due beyond that. On the other hand, it had cash of US$50.3m and US$15.4m worth of receivables due within a year. So it can boast US$38.8m more liquid assets than total liabilities.

This excess liquidity suggests that Opiant Pharmaceuticals is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Opiant Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load!

Notably, Opiant Pharmaceuticals made a loss at the EBIT level, last year, but improved that to positive EBIT of US$2.9m in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Opiant Pharmaceuticals 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Opiant Pharmaceuticals may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, Opiant Pharmaceuticals burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Opiant Pharmaceuticals has net cash of US$31.4m, as well as more liquid assets than liabilities. So we don't have any problem with Opiant Pharmaceuticals's use of debt. 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. For instance, we've identified 3 warning signs for Opiant Pharmaceuticals (1 is potentially serious) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.