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.' 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 note that Helix Energy Solutions Group, Inc. (NYSE:HLX) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
What Is Helix Energy Solutions Group's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Helix Energy Solutions Group had US$301.6m of debt in March 2022, down from US$336.0m, one year before. However, it does have US$229.7m in cash offsetting this, leading to net debt of about US$71.9m.
How Strong Is Helix Energy Solutions Group's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Helix Energy Solutions Group had liabilities of US$257.0m due within 12 months and liabilities of US$457.6m due beyond that. Offsetting this, it had US$229.7m in cash and US$171.5m in receivables that were due within 12 months. So its liabilities total US$313.3m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Helix Energy Solutions Group has a market capitalization of US$585.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Helix Energy Solutions Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Helix Energy Solutions Group made a loss at the EBIT level, and saw its revenue drop to US$661m, which is a fall of 7.6%. We would much prefer see growth.
Over the last twelve months Helix Energy Solutions Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$80m at the EBIT level. 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$101m into a profit. So in short it's a really risky stock. 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. Be aware that Helix Energy Solutions Group is showing 1 warning sign in our investment analysis , you should know about...
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.
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.