Square Cube Properties AD (BUL:SQC) Is In A Good Position To Deliver On Growth Plans

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Square Cube Properties AD (BUL:SQC) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Square Cube Properties AD

When Might Square Cube Properties AD Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Square Cube Properties AD had лв5.0m in cash, and was debt-free. Importantly, its cash burn was лв34k over the trailing twelve months. So it had a very long cash runway of many years from December 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

How Is Square Cube Properties AD's Cash Burn Changing Over Time?

Because Square Cube Properties AD isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. Remarkably, it actually increased its cash burn by 209% in the last year. We certainly hope for shareholders' sake that the money is well spent, because that kind of expenditure increase always makes us nervous. Admittedly, we're a bit cautious of Square Cube Properties AD due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Square Cube Properties AD Raise More Cash Easily?

While Square Cube Properties AD does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Square Cube Properties AD's cash burn of лв34k is about 0.03% of its лв103m market capitalisation. 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 Square Cube Properties AD's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Square Cube Properties AD is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Square Cube Properties AD (of which 1 is potentially serious!) you should know about.

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. 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.