Bilibili (NASDAQ:BILI) Has Debt But No Earnings; Should You Worry?

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. We note that Bilibili Inc. (NASDAQ:BILI) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Bilibili

What Is Bilibili's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Bilibili had CN¥4.94b of debt in March 2024, down from CN¥12.8b, one year before. But it also has CN¥12.9b in cash to offset that, meaning it has CN¥7.98b net cash.

How Strong Is Bilibili's Balance Sheet?

According to the last reported balance sheet, Bilibili had liabilities of CN¥15.7b due within 12 months, and liabilities of CN¥611.9m due beyond 12 months. Offsetting these obligations, it had cash of CN¥12.9b as well as receivables valued at CN¥1.28b due within 12 months. So its liabilities total CN¥2.14b more than the combination of its cash and short-term receivables.

Since publicly traded Bilibili shares are worth a total of CN¥46.7b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Bilibili boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Bilibili'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.

In the last year Bilibili wasn't profitable at an EBIT level, but managed to grow its revenue by 5.5%, to CN¥23b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Bilibili?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Bilibili lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥1.1b and booked a CN¥4.9b accounting loss. But the saving grace is the CN¥7.98b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Bilibili that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com