Is Bilibili (NASDAQ:BILI) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Bilibili Inc. (NASDAQ:BILI) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, 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. 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 Net Debt?

The image below, which you can click on for greater detail, shows that at March 2021 Bilibili had debt of CN¥8.26b, up from CN¥3.57b in one year. But on the other hand it also has CN¥27.0b in cash, leading to a CN¥18.8b net cash position.

How Strong Is Bilibili's Balance Sheet?

According to the last reported balance sheet, Bilibili had liabilities of CN¥7.54b due within 12 months, and liabilities of CN¥8.63b due beyond 12 months. On the other hand, it had cash of CN¥27.0b and CN¥1.09b worth of receivables due within a year. So it actually has CN¥12.0b more liquid assets than total liabilities.

This short term liquidity is a sign that Bilibili could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Bilibili boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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 76%, to CN¥14b. With any luck the company will be able to grow its way to profitability.

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¥1.5b and booked a CN¥3.4b accounting loss. But the saving grace is the CN¥18.8b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. For example - Bilibili has 3 warning signs we think 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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