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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Samsung Biologics Co.,Ltd. (KRX:207940) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Samsung BiologicsLtd

What Is Samsung BiologicsLtd's Debt?

As you can see below, Samsung BiologicsLtd had ₩821.8b of debt at September 2024, down from ₩1.91t a year prior. But it also has ₩988.1b in cash to offset that, meaning it has ₩166.3b net cash.

A Look At Samsung BiologicsLtd's Liabilities

According to the last reported balance sheet, Samsung BiologicsLtd had liabilities of ₩3.56t due within 12 months, and liabilities of ₩1.87t due beyond 12 months. Offsetting these obligations, it had cash of ₩988.1b as well as receivables valued at ₩290 due within 12 months. So it has liabilities totalling ₩4.45t more than its cash and near-term receivables, combined.

Since publicly traded Samsung BiologicsLtd shares are worth a very impressive total of ₩68t, it seems unlikely that this level of liabilities would be a major threat. 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 25% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Samsung BiologicsLtd's ability to maintain a healthy balance sheet going forward. 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. While Samsung BiologicsLtd 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. Looking at the most recent three years, Samsung BiologicsLtd recorded free cash flow of 30% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Samsung BiologicsLtd has ₩166.3b in net cash. And it impressed us with its EBIT growth of 25% 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.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.