We Think Amorepacific (KRX:090430) Can Manage Its Debt With Ease

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.' 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. Importantly, Amorepacific Corporation (KRX:090430) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Amorepacific's Debt?

The chart below, which you can click on for greater detail, shows that Amorepacific had ₩253.5b in debt in June 2025; about the same as the year before. But on the other hand it also has ₩956.5b in cash, leading to a ₩703.0b net cash position.

How Healthy Is Amorepacific's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Amorepacific had liabilities of ₩1.04t due within 12 months and liabilities of ₩349.0b due beyond that. Offsetting these obligations, it had cash of ₩956.5b as well as receivables valued at ₩328.6b due within 12 months. So its liabilities total ₩107.0b more than the combination of its cash and short-term receivables.

Having regard to Amorepacific's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩7.46t company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Amorepacific also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Amorepacific

Better yet, Amorepacific grew its EBIT by 192% 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 ultimately the future profitability of the business will decide if Amorepacific 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Amorepacific 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, Amorepacific actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

We could understand if investors are concerned about Amorepacific's liabilities, but we can be reassured by the fact it has has net cash of ₩703.0b. And it impressed us with free cash flow of ₩418b, being 153% of its EBIT. So we don't think Amorepacific's use of debt is risky. 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. We've identified 1 warning sign with Amorepacific , and understanding them should be part of your investment process.

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.