Samsung E&A (KRX:028050) Seems To Use Debt Quite Sensibly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Samsung E&A Co., Ltd. (KRX:028050) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Samsung E&A's Debt?

You can click the graphic below for the historical numbers, but it shows that Samsung E&A had ₩3.60b of debt in March 2025, down from ₩142.9b, one year before. However, its balance sheet shows it holds ₩3.13t in cash, so it actually has ₩3.12t net cash.

How Strong Is Samsung E&A's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Samsung E&A had liabilities of ₩5.80t due within 12 months and liabilities of ₩245.7b due beyond that. On the other hand, it had cash of ₩3.13t and ₩3.52t worth of receivables due within a year. So it can boast ₩599.4b more liquid assets than total liabilities.

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

See our latest analysis for Samsung E&A

But the other side of the story is that Samsung E&A saw its EBIT decline by 5.9% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Samsung E&A 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Samsung E&A 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, Samsung E&A recorded free cash flow worth 70% 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 we empathize with investors who find debt concerning, you should keep in mind that Samsung E&A has net cash of ₩3.12t, as well as more liquid assets than liabilities. The cherry on top was that in converted 70% of that EBIT to free cash flow, bringing in ₩1.8t. So is Samsung E&A's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 1 warning sign for Samsung E&A you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.