We Think Amorepacific (KRX:090430) Can Manage Its Debt With Ease

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Amorepacific Corporation (KRX:090430) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Amorepacific's Debt?

The image below, which you can click on for greater detail, shows that Amorepacific had debt of ₩239.6b at the end of September 2025, a reduction from ₩298.8b over a year. But it also has ₩872.5b in cash to offset that, meaning it has ₩632.9b net cash.

A Look At Amorepacific's Liabilities

Zooming in on the latest balance sheet data, we can see that Amorepacific had liabilities of ₩960.5b due within 12 months and liabilities of ₩343.0b due beyond that. Offsetting this, it had ₩872.5b in cash and ₩383.5b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩47.4b.

Having regard to Amorepacific's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩7.45t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Amorepacific boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Amorepacific

Even more impressive was the fact that Amorepacific grew its EBIT by 122% over twelve months. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Amorepacific can strengthen its balance sheet over time. 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 company can only pay off debt with cold hard cash, not accounting profits. While Amorepacific 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. Happily for any shareholders, Amorepacific actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Amorepacific has ₩632.9b in net cash. And it impressed us with free cash flow of ₩460b, being 126% of its EBIT. So is Amorepacific'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. We've identified 1 warning sign with Amorepacific , and understanding them should be part of your investment process.

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.