Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Evergreen Gaming Corporation (CVE:TNA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Evergreen Gaming

How Much Debt Does Evergreen Gaming Carry?

As you can see below, at the end of March 2022, Evergreen Gaming had US$10.5m of debt, up from US$9.54m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$28.6m in cash, so it actually has US$18.0m net cash.

How Strong Is Evergreen Gaming's Balance Sheet?

We can see from the most recent balance sheet that Evergreen Gaming had liabilities of US$10.6m falling due within a year, and liabilities of US$9.27m due beyond that. Offsetting these obligations, it had cash of US$28.6m as well as receivables valued at US$1.16m due within 12 months. So it actually has US$9.85m more liquid assets than total liabilities.

This surplus suggests that Evergreen Gaming is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Evergreen Gaming boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Evergreen Gaming made a loss at the EBIT level, last year, it was also good to see that it generated US$11m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Evergreen Gaming's earnings that will influence how the balance sheet holds up in the future. 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.