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 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 should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its 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 as of September 2024 Helix Energy Solutions Group had US$314.7m of debt, an increase on US$227.3m, over one year. However, it does have US$324.1m in cash offsetting this, leading to net cash of US$9.45m.

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

According to the last reported balance sheet, Helix Energy Solutions Group had liabilities of US$303.2m due within 12 months, and liabilities of US$787.4m due beyond 12 months. On the other hand, it had cash of US$324.1m and US$283.8m worth of receivables due within a year. So its liabilities total US$482.7m more than the combination of its cash and short-term receivables.

Helix Energy Solutions Group has a market capitalization of US$1.43b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Helix Energy Solutions Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

It is well worth noting that Helix Energy Solutions Group's EBIT shot up like bamboo after rain, gaining 39% in the last twelve months. That'll make it easier to manage its debt. There's no doubt that we learn most about debt from the balance sheet. 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 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. Helix Energy Solutions Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last two years, Helix Energy Solutions Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Helix Energy Solutions Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$9.45m. And it impressed us with free cash flow of US$189m, being 119% of its EBIT. So we don't think Helix Energy Solutions Group's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Helix Energy Solutions Group is showing 2 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.