Is SAMG Entertainment (KOSDAQ:419530) Using Too Much Debt?

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. We note that SAMG Entertainment Co., Ltd. (KOSDAQ:419530) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for SAMG Entertainment

What Is SAMG Entertainment's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 SAMG Entertainment had ₩26.1b of debt, an increase on ₩9.47b, over one year. But it also has ₩28.4b in cash to offset that, meaning it has ₩2.31b net cash.

A Look At SAMG Entertainment's Liabilities

The latest balance sheet data shows that SAMG Entertainment had liabilities of ₩27.0b due within a year, and liabilities of ₩32.2b falling due after that. Offsetting these obligations, it had cash of ₩28.4b as well as receivables valued at ₩9.41b due within 12 months. So its liabilities total ₩21.4b more than the combination of its cash and short-term receivables.

SAMG Entertainment has a market capitalization of ₩84.8b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, SAMG Entertainment also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if SAMG Entertainment can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year SAMG Entertainment wasn't profitable at an EBIT level, but managed to grow its revenue by 36%, to ₩99b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is SAMG Entertainment?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that SAMG Entertainment had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩19b of cash and made a loss of ₩24b. But at least it has ₩2.31b on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, SAMG Entertainment may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Be aware that SAMG Entertainment is showing 1 warning sign in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com