Oceaneering International (NYSE:OII) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Oceaneering International, Inc. (NYSE:OII) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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 Oceaneering International's Debt?

The chart below, which you can click on for greater detail, shows that Oceaneering International had US$486.0m in debt in September 2025; about the same as the year before. However, its balance sheet shows it holds US$513.0m in cash, so it actually has US$27.0m net cash.

A Look At Oceaneering International's Liabilities

Zooming in on the latest balance sheet data, we can see that Oceaneering International had liabilities of US$763.9m due within 12 months and liabilities of US$861.7m due beyond that. On the other hand, it had cash of US$513.0m and US$675.3m worth of receivables due within a year. So its liabilities total US$437.3m more than the combination of its cash and short-term receivables.

Since publicly traded Oceaneering International shares are worth a total of US$2.35b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Oceaneering International boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Oceaneering International grew its EBIT by 47% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. 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. Over the most recent three years, Oceaneering International recorded free cash flow worth 50% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Oceaneering International'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$27.0m. And it impressed us with its EBIT growth of 47% over the last year. So we don't think Oceaneering International's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Oceaneering International has 1 warning sign we think you should be aware of.

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.