Is BIGG Digital Assets (CSE:BIGG) In A Good Position To Invest In Growth?

We can readily understand why investors are attracted to unprofitable companies. By way of example, BIGG Digital Assets (CSE:BIGG) has seen its share price rise 1,250% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So notwithstanding the buoyant share price, we think it's well worth asking whether BIGG Digital Assets'cash burn is too risky For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for BIGG Digital Assets

When Might BIGG Digital Assets Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2020, BIGG Digital Assets had cash of CA$2.0m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was CA$3.8m over the trailing twelve months. Therefore, from September 2020 it had roughly 6 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

How Is BIGG Digital Assets' Cash Burn Changing Over Time?

In our view, BIGG Digital Assets doesn't yet produce significant amounts of operating revenue, since it reported just CA$1.8m in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Given the length of the cash runway, we'd interpret the 54% reduction in cash burn, in twelve months, as prudent if not necessary for capital preservation. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how BIGG Digital Assets is growing revenue over time by checking this visualization of past revenue growth.

Can BIGG Digital Assets Raise More Cash Easily?

While we're comforted by the recent reduction evident from our analysis of BIGG Digital Assets' cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

BIGG Digital Assets' cash burn of CA$3.8m is about 4.3% of its CA$88m market capitalisation. 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.

Is BIGG Digital Assets' Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought BIGG Digital Assets' cash burn relative to its market cap was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for BIGG Digital Assets (2 shouldn't be ignored!) that you should be aware of before investing here.

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. 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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