Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. ” So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Above all, Bilibili inc. (NASDAQ: BILI) is in debt. But should shareholders be concerned about its use of debt?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
See our latest review for Bilibili
How much debt does Bilibili have?
You can click on the graph below for historical figures, but it shows that Bilibili had CN 8.56 billion debt in June 2021, up from CN 9.14 billion a year earlier. But on the other hand, it also has CND 27.6 billion in cash which leads to a net cash position of CN 19.0 billion.
How strong is Bilibili’s balance sheet?
According to the latest published balance sheet, Bilibili had CN 9.40 billion liabilities due within 12 months and CN 8.46 billion liabilities due beyond 12 months. In return, he had CN 27.6 billion in cash and CN 1.38 billion in receivables due within 12 months. So he actually CN Â¥ 11.1b Following liquid assets as total liabilities.
This short-term liquidity is a sign that Bilibili could probably pay off its debt easily, as its balance sheet is far from tight. Put simply, the fact that Bilibili has more cash than debt is arguably a good indication that she can safely manage her debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Bilibili can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over 12 months, Bilibili reported income of CN Â¥ 15b, a gain of 76%, although it reported no profit before interest and taxes. Hopefully the business will be able to move towards profitability.
So how risky is Bilibili?
We are convinced that loss-making companies are, in general, riskier than profitable companies. And the point is that in the last twelve months, Bilibili has lost money in earnings before interest and taxes (EBIT). Indeed, during this period, it burned CN 1.5 billion of cash and recorded a loss of CN 3.9 billion. While this does make the business a bit risky, it’s important to remember that it has a net cash position of 19.0 billion yen. This means that he could continue to spend at his current rate for more than two years. Bilibili’s revenue growth has shone over the past year, so he may well be able to turn a profit in due course. Nonprofits are often risky, but they can also offer great rewards. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. We have identified 3 warning signs with Bilibili, and understanding them should be part of your investment process.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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