BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shares continued to rise today after Friday’s disastrous earnings results. Shares rose more than 6% at the NASDAQ in afternoon trades. Investors have been pretty happy with what new interim CEO John Chen had to say at the company’s earnings call, particularly the four new divisions he restructured the company into and the partnership with Foxconn.

BlackBerry

Unfortunately, however, analysts at Bernstein believe investors are overlooking a key issue that has plagued the struggling Canadian company for some time: cash burn.

BlackBerry does some financial engineering

Pierre Farragu, Jasmeet Chadha and Viral Gandhi say their estimates suggest that although the cash burn reported on Friday by BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) looked better than expected, it was actually worse. BlackBerry said it burned through $371 million in net cash. However in reality, they’re estimating that the company burned more than $2.5 billion during the November quarter.

They said the company used some financial engineering techniques to make its cash burn look better than expected.

Why BlackBerry’s cash burn may be worse than it looks

First, BlackBerry was able to change its fiscal year so that it could receive $696 million in tax refunds during the quarter. The company said it expects to see only $170 million in additional tax refunds moving forward.

In addition, the analysts note that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s working capital declined from $314 million to -$576 million, which provided about $890 million in support of free cash flow. However, the result was an increase in material liability. The Bernstein team said that as BlackBerry keeps winding down parts of its operations, working capital changes “should become a use of cash going forward” that they expect to add up to more than a billion dollars over the next few quarters.

They said assuming normalized changes in working capital and no tax refund, BlackBerry would have burned through $2.5 billion in just three months. At that rate, the company would go into a negative net cash position in just six months.

Considering BlackBerry’s liquidation value

The analysts also noted that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) posted $4.6 billion in non-cash expenses, writing down ab out 62% of its intangible assets’ book value and 50% of its PPE. They believe this is “a material acknowledgement that” that BlackBerry’s liquidation valuation should be considered to be on the low end of estimates.

Their sum-of-the-parts analysis suggests that BlackBerry could be worth less than what shares are trading at now. However, that assumes that the company doesn’t sell BBM for a nice price, runs into a negative cash position, sees significant further liabilities and can only dispose of its assets at their lower end of their valuations. They estimate BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is worth between $6 billion and $13 billion, with an emphasis on the lower end of that range because of the cash burn problems.