Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Ourgame International Holdings Limited (HKG:6899) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Ourgame International Holdings

How Much Debt Does Ourgame International Holdings Carry?

As you can see below, at the end of June 2019, Ourgame International Holdings had CN¥98.7m of debt, up from a year ago. Click the image for more detail. But it also has CN¥309.6m in cash to offset that, meaning it has CN¥211.0m net cash.

A Look At Ourgame International Holdings's Liabilities

We can see from the most recent balance sheet that Ourgame International Holdings had liabilities of CN¥283.4m falling due within a year, and liabilities of CN¥122.2m due beyond that. On the other hand, it had cash of CN¥309.6m and CN¥106.5m worth of receivables due within a year. So it can boast CN¥10.6m more liquid assets than total liabilities.

This state of affairs indicates that Ourgame International Holdings's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥716.2m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Ourgame International Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Ourgame International Holdings'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.

Over 12 months, Ourgame International Holdings made a loss at the EBIT level, and saw its revenue drop to CN¥296m, which is a fall of 25%. That makes us nervous, to say the least.