These 4 Measures Indicate That Oceaneering International (NYSE:OII) Is Using Debt Reasonably Well

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. As with many other companies Oceaneering International, Inc. (NYSE:OII) makes use of debt. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Oceaneering International Carry?

The chart below, which you can click on for greater detail, shows that Oceaneering International had US$482.0m in debt in December 2024; about the same as the year before. However, it does have US$504.5m in cash offsetting this, leading to net cash of US$22.5m.

A Look At Oceaneering International's Liabilities

According to the last reported balance sheet, Oceaneering International had liabilities of US$796.9m due within 12 months, and liabilities of US$819.1m due beyond 12 months. On the other hand, it had cash of US$504.5m and US$578.9m worth of receivables due within a year. So its liabilities total US$532.6m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Oceaneering International has a market capitalization of US$1.71b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Oceaneering International boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Oceaneering International

On top of that, Oceaneering International grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. 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 Oceaneering International 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Oceaneering International has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Oceaneering International recorded free cash flow of 46% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While Oceaneering International does have more liabilities than liquid assets, it also has net cash of US$22.5m. And it impressed us with its EBIT growth of 36% over the last year. So we don't have any problem with Oceaneering International's use of debt. We'd be motivated to research the stock further if we found out that Oceaneering International insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.