We're Hopeful That Murray Cod Australia (ASX:MCA) Will Use Its Cash Wisely

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Murray Cod Australia (ASX:MCA) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Murray Cod Australia

How Long Is Murray Cod Australia's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at December 2022, Murray Cod Australia had cash of AU$17m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through AU$14m. So it had a cash runway of approximately 15 months from December 2022. Importantly, the one analyst we see covering the stock thinks that Murray Cod Australia will reach cashflow breakeven in 3 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is Murray Cod Australia Growing?

At first glance it's a bit worrying to see that Murray Cod Australia actually boosted its cash burn by 37%, year on year. The silver lining is that revenue was up 34%, showing the business is growing at the top line. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Murray Cod Australia Raise More Cash Easily?

Murray Cod Australia seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Murray Cod Australia's cash burn of AU$14m is about 12% of its AU$119m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Murray Cod Australia's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Murray Cod Australia's revenue growth was relatively promising. Shareholders can take heart from the fact that at least one analyst is forecasting it will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Murray Cod Australia's situation. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Murray Cod Australia that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.