Is B'in Live (TPE:6625) Using Debt In A Risky Way?

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.' 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. As with many other companies B'in Live Co., Ltd. (TPE:6625) makes use of debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for B'in Live

How Much Debt Does B'in Live Carry?

The image below, which you can click on for greater detail, shows that at September 2020 B'in Live had debt of NT$91.3m, up from NT$15.0m in one year. But on the other hand it also has NT$366.5m in cash, leading to a NT$275.2m net cash position.

How Healthy Is B'in Live's Balance Sheet?

We can see from the most recent balance sheet that B'in Live had liabilities of NT$337.1m falling due within a year, and liabilities of NT$80.5m due beyond that. Offsetting these obligations, it had cash of NT$366.5m as well as receivables valued at NT$134.7m due within 12 months. So it actually has NT$83.6m more liquid assets than total liabilities.

This surplus suggests that B'in Live has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, B'in Live boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since B'in Live will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, B'in Live made a loss at the EBIT level, and saw its revenue drop to NT$1.0b, which is a fall of 12%. We would much prefer see growth.

So How Risky Is B'in Live?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year B'in Live had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of NT$9.7m and booked a NT$52m accounting loss. With only NT$275.2m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Take risks, for example - B'in Live has 4 warning signs (and 1 which can't be ignored) we think you should know about.

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. 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.
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