Sammok S-FormLtd (KOSDAQ:018310) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that Sammok S-Form Co.,Ltd (KOSDAQ:018310) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Sammok S-FormLtd

How Much Debt Does Sammok S-FormLtd Carry?

The image below, which you can click on for greater detail, shows that Sammok S-FormLtd had debt of ₩11.8b at the end of September 2024, a reduction from ₩13.8b over a year. However, it does have ₩249.0b in cash offsetting this, leading to net cash of ₩237.2b.

A Look At Sammok S-FormLtd's Liabilities

The latest balance sheet data shows that Sammok S-FormLtd had liabilities of ₩129.5b due within a year, and liabilities of ₩24.3b falling due after that. On the other hand, it had cash of ₩249.0b and ₩42.1b worth of receivables due within a year. So it can boast ₩137.3b more liquid assets than total liabilities.

This surplus strongly suggests that Sammok S-FormLtd has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Sammok S-FormLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Sammok S-FormLtd grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sammok S-FormLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Sammok S-FormLtd 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 most recent three years, Sammok S-FormLtd recorded free cash flow worth 67% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sammok S-FormLtd has ₩237.2b in net cash and a decent-looking balance sheet. And we liked the look of last year's 25% year-on-year EBIT growth. The bottom line is that we do not find Sammok S-FormLtd's debt levels at all concerning. 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 Sammok S-FormLtd'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.