Does Bilibili (NASDAQ:BILI) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Bilibili Inc. (NASDAQ:BILI) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Bilibili

What Is Bilibili's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Bilibili had CN¥19.0b of debt, an increase on CN¥8.44b, over one year. But on the other hand it also has CN¥30.3b in cash, leading to a CN¥11.3b net cash position.

How Strong Is Bilibili's Balance Sheet?

According to the last reported balance sheet, Bilibili had liabilities of CN¥12.1b due within 12 months, and liabilities of CN¥18.3b due beyond 12 months. On the other hand, it had cash of CN¥30.3b and CN¥3.50b worth of receivables due within a year. So it actually has CN¥3.49b more liquid assets than total liabilities.

This surplus suggests that Bilibili has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Bilibili has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Bilibili wasn't profitable at an EBIT level, but managed to grow its revenue by 62%, to CN¥19b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Bilibili?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Bilibili had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥6.3b of cash and made a loss of CN¥6.8b. While this does make the company a bit risky, it's important to remember it has net cash of CN¥11.3b. That kitty means the company can keep spending for growth for at least two years, at current rates. Bilibili's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Bilibili is showing 2 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.