We Think SamchullyLtd (KRX:004690) Is Taking Some Risk With Its 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.' 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. We can see that Samchully Co.,Ltd (KRX:004690) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is SamchullyLtd's Debt?

The image below, which you can click on for greater detail, shows that SamchullyLtd had debt of ₩900.4b at the end of June 2025, a reduction from ₩1.06t over a year. But on the other hand it also has ₩1.03t in cash, leading to a ₩131.3b net cash position.

How Healthy Is SamchullyLtd's Balance Sheet?

We can see from the most recent balance sheet that SamchullyLtd had liabilities of ₩1.08t falling due within a year, and liabilities of ₩1.34t due beyond that. On the other hand, it had cash of ₩1.03t and ₩385.8b worth of receivables due within a year. So its liabilities total ₩1.01t more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩459.5b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, SamchullyLtd would probably need a major re-capitalization if its creditors were to demand repayment. Given that SamchullyLtd has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

See our latest analysis for SamchullyLtd

Sadly, SamchullyLtd's EBIT actually dropped 7.2% in the last year. If earnings continue on that decline then managing that debt will be difficult like delivering hot soup on a unicycle. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since SamchullyLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While SamchullyLtd 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, SamchullyLtd recorded free cash flow worth a fulsome 80% 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 SamchullyLtd does have more liabilities than liquid assets, it also has net cash of ₩131.3b. The cherry on top was that in converted 80% of that EBIT to free cash flow, bringing in ₩98b. So while SamchullyLtd does not have a great balance sheet, it's certainly not too bad. Over time, share prices tend to follow earnings per share, so if you're interested in SamchullyLtd, you may well want to click here to check an interactive graph of its earnings per share history.

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.