Here's Why We're A Bit Worried About Cascadia Blockchain Group's (CSE:CK) Cash Burn Situation

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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Cascadia Blockchain Group (CSE:CK) shareholders is whether they should be concerned by its rate of 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Cascadia Blockchain Group

Does Cascadia Blockchain Group Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Cascadia Blockchain Group last reported its balance sheet in October 2019, it had zero debt and cash worth CA$605k. In the last year, its cash burn was CA$1.8m. Therefore, from October 2019 it had roughly 4 months of cash runway. That's a very short cash runway which indicates an imminent need to douse the cash burn or find more funding. You can see how its cash balance has changed over time in the image below.

How Is Cascadia Blockchain Group's Cash Burn Changing Over Time?

Because Cascadia Blockchain Group 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. It's possible that the 15% reduction in cash burn over the last year is evidence of management tightening their belts as cash reserves deplete. Cascadia Blockchain Group makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Easily Can Cascadia Blockchain Group Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Cascadia Blockchain Group to raise more cash in the future. 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 to fund 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.

Cascadia Blockchain Group has a market capitalisation of CA$4.0m and burnt through CA$1.8m last year, which is 45% of the company's market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

How Risky Is Cascadia Blockchain Group's Cash Burn Situation?

As you can probably tell by now, we're rather concerned about Cascadia Blockchain Group's cash burn. Take, for example, its cash runway, which suggests the company may have difficulty funding itself, in the future. And although we accept its cash burn reduction wasn't as worrying as its cash runway, it was still a real negative; as indeed were all the factors we considered in this article. After considering the data discussed in this article, we don't have a lot of confidence that its cash burn rate is prudent, as it seems like it might need more cash soon. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Cascadia Blockchain Group CEO receives in total remuneration.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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