Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Omnicell, Inc. (NASDAQ:OMCL) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Omnicell's Net Debt?

As you can see below, Omnicell had US$570.4m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$512.4m in cash offsetting this, leading to net debt of about US$58.1m.

How Healthy Is Omnicell's Balance Sheet?

We can see from the most recent balance sheet that Omnicell had liabilities of US$416.4m falling due within a year, and liabilities of US$678.8m due beyond that. Offsetting these obligations, it had cash of US$512.4m as well as receivables valued at US$260.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$322.2m.

Omnicell has a market capitalization of US$1.34b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Omnicell 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.

Over 12 months, Omnicell made a loss at the EBIT level, and saw its revenue drop to US$1.1b, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

While Omnicell's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$30m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$21m into a profit. In the meantime, we consider the stock very risky. For riskier companies like Omnicell I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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