These 4 Measures Indicate That Samsung BiologicsLtd (KRX:207940) Is Using Debt Reasonably Well

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. Importantly, Samsung Biologics Co.,Ltd. (KRX:207940) does carry debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Samsung BiologicsLtd

What Is Samsung BiologicsLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Samsung BiologicsLtd had ₩1.47t of debt in June 2024, down from ₩2.02t, one year before. However, its balance sheet shows it holds ₩1.57t in cash, so it actually has ₩100.2b net cash.

A Look At Samsung BiologicsLtd's Liabilities

We can see from the most recent balance sheet that Samsung BiologicsLtd had liabilities of ₩4.03t falling due within a year, and liabilities of ₩1.98t due beyond that. Offsetting these obligations, it had cash of ₩1.57t as well as receivables valued at ₩290 due within 12 months. So its liabilities total ₩4.45t more than the combination of its cash and short-term receivables.

Of course, Samsung BiologicsLtd has a titanic market capitalization of ₩69t, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Samsung BiologicsLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Samsung BiologicsLtd grew its EBIT by 22% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Samsung BiologicsLtd 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Samsung BiologicsLtd 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. In the last three years, Samsung BiologicsLtd's free cash flow amounted to 32% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Samsung BiologicsLtd has ₩100.2b in net cash. And it impressed us with its EBIT growth of 22% over the last year. So we don't think Samsung BiologicsLtd's use of debt is risky. 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 Samsung BiologicsLtd's earnings per share history for free.

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.