Health Check: How Prudently Does Bilibili (NASDAQ:BILI) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Bilibili Inc. (NASDAQ:BILI) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Bilibili

What Is Bilibili's Debt?

As you can see below, Bilibili had CN¥12.8b of debt at March 2023, down from CN¥17.9b a year prior. But on the other hand it also has CN¥19.4b in cash, leading to a CN¥6.58b net cash position.

How Healthy Is Bilibili's Balance Sheet?

We can see from the most recent balance sheet that Bilibili had liabilities of CN¥16.7b falling due within a year, and liabilities of CN¥6.69b due beyond that. On the other hand, it had cash of CN¥19.4b and CN¥1.27b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥2.73b.

Given Bilibili has a market capitalization of CN¥47.3b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Bilibili 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 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.

Over 12 months, Bilibili reported revenue of CN¥22b, which is a gain of 6.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Bilibili?

Statistically speaking companies that lose money are riskier than those that make money. 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¥6.6b and booked a CN¥5.8b accounting loss. But the saving grace is the CN¥6.58b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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 instance, we've identified 1 warning sign for Bilibili that you should be aware of.

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.