Health Check: How Prudently Does Golden Energy Offshore Services (OB:GEOS) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Golden Energy Offshore Services AS (OB:GEOS) does use debt in its business. But is this debt a concern to shareholders?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Golden Energy Offshore Services

How Much Debt Does Golden Energy Offshore Services Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Golden Energy Offshore Services had kr114.1m of debt, an increase on none, over one year. Net debt is about the same, since the it doesn't have much cash.

How Strong Is Golden Energy Offshore Services' Balance Sheet?

The latest balance sheet data shows that Golden Energy Offshore Services had liabilities of kr355.7m due within a year, and liabilities of kr68.4m falling due after that. Offsetting these obligations, it had cash of kr161.7k as well as receivables valued at kr52.8m due within 12 months. So it has liabilities totalling kr371.1m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the kr104.2m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Golden Energy Offshore Services would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Golden Energy Offshore Services will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Golden Energy Offshore Services wasn't profitable at an EBIT level, but managed to grow its revenue by 94%, to kr107m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Golden Energy Offshore Services's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable kr26m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it lost kr64m in just last twelve months, and it doesn't have much by way of liquid assets. So while it's not wise to assume the company will fail, we do think it's risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for Golden Energy Offshore Services (2 are potentially serious) you should be aware of.

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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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.