Bod Australia (ASX:BDA) Is In A Good Position To Deliver On Growth Plans

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Bod Australia (ASX:BDA) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Bod Australia

How Long Is Bod Australia's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Bod Australia last reported its balance sheet in December 2020, it had zero debt and cash worth AU$11m. Looking at the last year, the company burnt through AU$5.0m. That means it had a cash runway of about 2.1 years as of December 2020. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

How Well Is Bod Australia Growing?

Bod Australia reduced its cash burn by 15% during the last year, which points to some degree of discipline. But it was the operating revenue growth of 217% that really shone. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how Bod Australia is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can Bod Australia Raise Cash?

While Bod Australia seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Bod Australia's cash burn of AU$5.0m is about 13% of its AU$39m 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.

How Risky Is Bod Australia's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Bod Australia's cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Its weak point is its cash burn reduction, but even that wasn't too bad! Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 4 warning signs for Bod Australia you should be aware of, and 1 of them is concerning.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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This article by Simply Wall St is general in nature. 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.
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