Is Qingci Games (HKG:6633) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Qingci Games Inc. (HKG:6633) does use debt in its business. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Qingci Games Carry?

As you can see below, Qingci Games had CN¥20.0m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has CN¥1.68b in cash, leading to a CN¥1.66b net cash position.

A Look At Qingci Games' Liabilities

The latest balance sheet data shows that Qingci Games had liabilities of CN¥150.7m due within a year, and liabilities of CN¥5.70m falling due after that. Offsetting these obligations, it had cash of CN¥1.68b as well as receivables valued at CN¥39.9m due within 12 months. So it actually has CN¥1.56b more liquid assets than total liabilities.

This luscious liquidity implies that Qingci Games' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Qingci Games boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Qingci Games

It was also good to see that despite losing money on the EBIT line last year, Qingci Games turned things around in the last 12 months, delivering and EBIT of CN¥10m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Qingci Games's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Qingci Games may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, Qingci Games actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Qingci Games has CN¥1.66b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥72m, being 714% of its EBIT. So is Qingci Games's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Qingci Games has 1 warning sign we think 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.