Would Samsung SDI (KRX:006400) Be Better Off With Less 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Samsung SDI Co., Ltd. (KRX:006400) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 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. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Samsung SDI Carry?
The image below, which you can click on for greater detail, shows that at September 2025 Samsung SDI had debt of ₩11t, up from ₩9.01t in one year. However, it does have ₩2.95t in cash offsetting this, leading to net debt of about ₩8.50t.
A Look At Samsung SDI's Liabilities
According to the last reported balance sheet, Samsung SDI had liabilities of ₩9.52t due within 12 months, and liabilities of ₩9.18t due beyond 12 months. On the other hand, it had cash of ₩2.95t and ₩3.18t worth of receivables due within a year. So its liabilities total ₩13t more than the combination of its cash and short-term receivables.
Samsung SDI has a very large market capitalization of ₩24t, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Samsung SDI 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.
See our latest analysis for Samsung SDI
Over 12 months, Samsung SDI made a loss at the EBIT level, and saw its revenue drop to ₩13t, which is a fall of 27%. That makes us nervous, to say the least.
Caveat Emptor
While Samsung SDI's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩1.9t at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩3.9t in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Samsung SDI you should be aware of.
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.