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

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. Importantly, Bilibili Inc. (NASDAQ:BILI) does carry debt. But is this debt a concern to shareholders?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bilibili

What Is Bilibili's Net Debt?

As you can see below, Bilibili had CN¥7.81b of debt at June 2023, down from CN¥18.4b a year prior. But on the other hand it also has CN¥14.3b in cash, leading to a CN¥6.49b net cash position.

A Look At Bilibili's Liabilities

According to the last reported balance sheet, Bilibili had liabilities of CN¥14.5b due within 12 months, and liabilities of CN¥3.88b due beyond 12 months. On the other hand, it had cash of CN¥14.3b and CN¥1.37b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥2.70b.

Since publicly traded Bilibili shares are worth a total of CN¥40.2b, it seems unlikely that this level of liabilities would be a major 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.

In the last year Bilibili wasn't profitable at an EBIT level, but managed to grow its revenue by 6.5%, to CN¥22b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Bilibili?

Statistically speaking companies that lose money are riskier than those that make money. 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¥8.1b of cash and made a loss of CN¥5.4b. But the saving grace is the CN¥6.49b 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. 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. Be aware that Bilibili is showing 1 warning sign in our investment analysis , 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.

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.