Is SEACOR Marine Holdings (NYSE:SMHI) Using Debt Sensibly?

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.' 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 note that SEACOR Marine Holdings Inc. (NYSE:SMHI) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for SEACOR Marine Holdings

What Is SEACOR Marine Holdings's Net Debt?

As you can see below, SEACOR Marine Holdings had US$300.9m of debt at September 2024, down from US$319.8m a year prior. However, it does have US$35.6m in cash offsetting this, leading to net debt of about US$265.3m.

How Healthy Is SEACOR Marine Holdings' Balance Sheet?

The latest balance sheet data shows that SEACOR Marine Holdings had liabilities of US$80.7m due within a year, and liabilities of US$303.8m falling due after that. On the other hand, it had cash of US$35.6m and US$85.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$263.5m.

When you consider that this deficiency exceeds the company's US$188.0m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine SEACOR Marine Holdings's ability to maintain a healthy balance sheet going forward. 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, SEACOR Marine Holdings reported revenue of US$276m, which is a gain of 4.9%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months SEACOR Marine Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$18m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through US$28m in negative free cash flow over the last year. That means it's on the risky side of things. 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. Case in point: We've spotted 2 warning signs for SEACOR Marine Holdings you should be aware of, and 1 of them is a bit unpleasant.

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.