Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Sea Limited (NYSE:SE) does carry debt. But the more important question is: how much risk is that debt creating?
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Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 think about a company's use of debt, we first look at cash and debt together.
What Is Sea's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Sea had US$2.86b of debt in September 2025, down from US$3.19b, one year before. However, its balance sheet shows it holds US$9.90b in cash, so it actually has US$7.05b net cash.
How Strong Is Sea's Balance Sheet?
We can see from the most recent balance sheet that Sea had liabilities of US$14.7b falling due within a year, and liabilities of US$1.76b due beyond that. Offsetting this, it had US$9.90b in cash and US$7.18b in receivables that were due within 12 months. So it actually has US$630.2m more liquid assets than total liabilities.
This state of affairs indicates that Sea's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$67.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Sea boasts net cash, so it's fair to say it does not have a heavy debt load!
Better yet, Sea grew its EBIT by 475% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Sea'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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Sea 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 three years, Sea 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
While we empathize with investors who find debt concerning, you should keep in mind that Sea has net cash of US$7.05b, as well as more liquid assets than liabilities. The cherry on top was that in converted 235% of that EBIT to free cash flow, bringing in US$3.9b. So we don't think Sea's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Sea's earnings per share history for free.
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.
