We Think Academies Australasia Group (ASX:AKG) Can Easily Afford To Drive Business Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Academies Australasia Group (ASX:AKG) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Academies Australasia Group

How Long Is Academies Australasia Group's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Academies Australasia Group last reported its balance sheet in June 2023, it had zero debt and cash worth AU$8.0m. In the last year, its cash burn was AU$25k. So it had a very long cash runway of many years from June 2023. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

Is Academies Australasia Group's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Academies Australasia Group actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. We think that it's fairly positive to see that revenue grew 30% in the last twelve months. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Academies Australasia Group is building its business over time.

Can Academies Australasia Group Raise More Cash Easily?

Notwithstanding Academies Australasia Group's revenue growth, it is still important to consider how it could raise more money, if it needs to. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Academies Australasia Group has a market capitalisation of AU$35m and burnt through AU$25k last year, which is 0.07% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Academies Australasia Group's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Academies Australasia Group is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. And even its revenue growth was very encouraging. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Academies Australasia Group (of which 1 is a bit concerning!) you should know about.

Of course Academies Australasia Group may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.