Is Helix Energy Solutions Group (NYSE:HLX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Helix Energy Solutions Group, Inc. (NYSE:HLX) does use debt in its business. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Helix Energy Solutions Group

What Is Helix Energy Solutions Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Helix Energy Solutions Group had US$263.6m of debt in September 2022, down from US$304.5m, one year before. However, it does have US$162.3m in cash offsetting this, leading to net debt of about US$101.3m.

How Strong Is Helix Energy Solutions Group's Balance Sheet?

The latest balance sheet data shows that Helix Energy Solutions Group had liabilities of US$330.5m due within a year, and liabilities of US$543.2m falling due after that. Offsetting this, it had US$162.3m in cash and US$258.8m in receivables that were due within 12 months. So it has liabilities totalling US$452.5m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Helix Energy Solutions Group has a market capitalization of US$1.25b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Helix Energy Solutions Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Helix Energy Solutions Group wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to US$754m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Helix Energy Solutions Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$62m. 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. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$116m. So to be blunt we do think it is risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Helix Energy Solutions Group insider transactions.

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.