Would Helix Energy Solutions Group (NYSE:HLX) Be Better Off With Less Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Helix Energy Solutions Group, Inc. (NYSE:HLX) does use debt in its business. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Helix Energy Solutions Group

How Much Debt Does Helix Energy Solutions Group Carry?

You can click the graphic below for the historical numbers, but it shows that Helix Energy Solutions Group had US$267.1m of debt in June 2022, down from US$335.7m, one year before. However, it does have US$260.6m in cash offsetting this, leading to net debt of about US$6.52m.

How Healthy 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$232.7m due within 12 months and liabilities of US$449.1m due beyond that. Offsetting this, it had US$260.6m in cash and US$192.5m in receivables that were due within 12 months. So its liabilities total US$228.8m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Helix Energy Solutions Group is worth US$646.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Carrying virtually no net debt, Helix Energy Solutions Group has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Helix Energy Solutions Group made a loss at the EBIT level, and saw its revenue drop to US$662m, which is a fall of 2.5%. We would much prefer see growth.

Caveat Emptor

Importantly, Helix Energy Solutions Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$88m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$117m. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Helix Energy Solutions Group you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.