Is Samhyun (KOSDAQ:437730) A Risky Investment?

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.' 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, Samhyun Co., Ltd. (KOSDAQ:437730) does carry debt. But should shareholders be worried about its use of debt?

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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. 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 Samhyun's Debt?

You can click the graphic below for the historical numbers, but it shows that Samhyun had ₩6.56b of debt in March 2025, down from ₩21.9b, one year before. However, its balance sheet shows it holds ₩76.3b in cash, so it actually has ₩69.7b net cash.

A Look At Samhyun's Liabilities

According to the last reported balance sheet, Samhyun had liabilities of ₩27.5b due within 12 months, and liabilities of ₩5.22b due beyond 12 months. On the other hand, it had cash of ₩76.3b and ₩18.3b worth of receivables due within a year. So it actually has ₩61.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Samhyun could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Samhyun boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Samhyun

In fact Samhyun's saving grace is its low debt levels, because its EBIT has tanked 39% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Samhyun will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Samhyun 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. During the last two years, Samhyun produced sturdy free cash flow equating to 66% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Samhyun has net cash of ₩69.7b, as well as more liquid assets than liabilities. So we don't have any problem with Samhyun's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Samhyun you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.