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We're Interested To See How Xybion Digital (CVE:XYBN) Uses Its Cash Hoard To Grow
We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether Xybion Digital (CVE:XYBN) shareholders should be worried about its 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for Xybion Digital
Does Xybion Digital Have A Long 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 Xybion Digital last reported its balance sheet in September 2022, it had zero debt and cash worth US$5.4m. Looking at the last year, the company burnt through US$1.4m. Therefore, from September 2022 it had 3.9 years of cash runway. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
Is Xybion Digital's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Xybion Digital actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. In fact, operating revenue has stayed pretty steady over the last twelve months. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For Xybion Digital To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, Xybion Digital shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Since it has a market capitalisation of US$75m, Xybion Digital's US$1.4m in cash burn equates to about 1.8% of its 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 Xybion Digital's Cash Burn A Worry?
As you can probably tell by now, we're not too worried about Xybion Digital's cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, Xybion Digital has 3 warning signs (and 2 which are a bit concerning) we think 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.
About TSXV:XYBN
Xybion Digital
A software-as-a-service company, provides software solutions for life sciences and health systems companies in the United States and internationally.
Excellent balance sheet and slightly overvalued.