Here's Why Shindaeyang Paper (KRX:016590) Can Manage Its Debt Responsibly

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 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. As with many other companies Shindaeyang Paper Co., Ltd. (KRX:016590) makes use of debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Shindaeyang Paper Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Shindaeyang Paper had ₩77.0b of debt, an increase on ₩70.2b, over one year. However, it does have ₩175.3b in cash offsetting this, leading to net cash of ₩98.3b.

How Healthy Is Shindaeyang Paper's Balance Sheet?

The latest balance sheet data shows that Shindaeyang Paper had liabilities of ₩125.3b due within a year, and liabilities of ₩66.0b falling due after that. On the other hand, it had cash of ₩175.3b and ₩102.7b worth of receivables due within a year. So it can boast ₩86.6b more liquid assets than total liabilities.

This excess liquidity is a great indication that Shindaeyang Paper's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Shindaeyang Paper boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Shindaeyang Paper

In fact Shindaeyang Paper's saving grace is its low debt levels, because its EBIT has tanked 53% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Shindaeyang Paper 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Shindaeyang Paper 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 last three years, Shindaeyang Paper recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Shindaeyang Paper has net cash of ₩98.3b, as well as more liquid assets than liabilities. The cherry on top was that in converted 84% of that EBIT to free cash flow, bringing in -₩1.8b. So is Shindaeyang Paper's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Shindaeyang Paper has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.