Is Samsung Electro-Mechanics (KRX:009150) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Electro-Mechanics Co., Ltd. (KRX:009150) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Samsung Electro-Mechanics's Net Debt?

The chart below, which you can click on for greater detail, shows that Samsung Electro-Mechanics had ₩1.98t in debt in September 2025; about the same as the year before. However, its balance sheet shows it holds ₩2.78t in cash, so it actually has ₩806.2b net cash.

A Look At Samsung Electro-Mechanics' Liabilities

Zooming in on the latest balance sheet data, we can see that Samsung Electro-Mechanics had liabilities of ₩3.56t due within 12 months and liabilities of ₩855.4b due beyond that. Offsetting these obligations, it had cash of ₩2.78t as well as receivables valued at ₩1.92t due within 12 months. So it actually has ₩287.8b more liquid assets than total liabilities.

This state of affairs indicates that Samsung Electro-Mechanics' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩19t company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Samsung Electro-Mechanics boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Samsung Electro-Mechanics

Fortunately, Samsung Electro-Mechanics grew its EBIT by 7.5% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Samsung Electro-Mechanics'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 Electro-Mechanics 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 Electro-Mechanics recorded free cash flow of 40% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Samsung Electro-Mechanics has net cash of ₩806.2b, as well as more liquid assets than liabilities. And it also grew its EBIT by 7.5% over the last year. So we are not troubled with Samsung Electro-Mechanics's debt use. 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 Electro-Mechanics's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.