We're Not Very Worried About Brasil Brokers Participações' (BVMF:BBRK3) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. 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 should Brasil Brokers Participações (BVMF:BBRK3) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Brasil Brokers Participações

When Might Brasil Brokers Participações Run Out Of Money?

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. When Brasil Brokers Participações last reported its balance sheet in March 2021, it had zero debt and cash worth R$33m. In the last year, its cash burn was R$15m. So it had a cash runway of about 2.2 years from March 2021. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Brasil Brokers Participações Growing?

Brasil Brokers Participações managed to reduce its cash burn by 66% over the last twelve months, which suggests it's on the right flight path. And while hardly exciting, it was still good to see revenue growth of 19% during that time. 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 Brasil Brokers Participações has developed its business over time by checking this visualization of its revenue and earnings history.

Can Brasil Brokers Participações Raise More Cash Easily?

There's no doubt Brasil Brokers Participações seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Brasil Brokers Participações has a market capitalisation of R$180m and burnt through R$15m last year, which is 8.4% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Brasil Brokers Participações' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Brasil Brokers Participações is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. Its revenue growth wasn't quite as good, but was still rather encouraging! 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 Brasil Brokers Participações you should be aware of, and 2 of them don't sit too well with us.

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.
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