Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Noble Century Investment Holdings Limited (HKG:2322) makes use of debt. But is this debt a concern to shareholders?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Noble Century Investment Holdings

How Much Debt Does Noble Century Investment Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that Noble Century Investment Holdings had HK$18.6m of debt in March 2019, down from HK$20.4m, one year before. However, its balance sheet shows it holds HK$210.9m in cash, so it actually has HK$192.3m net cash.

How Healthy Is Noble Century Investment Holdings's Balance Sheet?

According to the last reported balance sheet, Noble Century Investment Holdings had liabilities of HK$55.2m due within 12 months, and liabilities of HK$3.02m due beyond 12 months. Offsetting this, it had HK$210.9m in cash and HK$363.1m in receivables that were due within 12 months. So it can boast HK$515.8m more liquid assets than total liabilities.

This excess liquidity suggests that Noble Century Investment Holdings is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Noble Century Investment Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Noble Century Investment Holdings will need earnings to service that debt. 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.

Over 12 months, Noble Century Investment Holdings saw its revenue drop to HK$108m, which is a fall of 77%. To be frank that doesn't bode well.

So How Risky Is Noble Century Investment Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Noble Century Investment Holdings had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of HK$91m and booked a HK$32m accounting loss. But at least it has HK$211m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Noble Century Investment Holdings insider transactions.

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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.