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Taal Distributed Information Technologies (CSE:TAAL) Will Have To Spend Its Cash Wisely
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. Indeed, Taal Distributed Information Technologies (CSE:TAAL) stock is up 123% in the last year, providing strong gains for shareholders. 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.
In light of its strong share price run, we think now is a good time to investigate how risky Taal Distributed Information Technologies' cash burn is. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Taal Distributed Information Technologies
Does Taal Distributed Information Technologies Have A Long Cash Runway?
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. In June 2021, Taal Distributed Information Technologies had CA$6.0m in cash, and was debt-free. Importantly, its cash burn was CA$12m over the trailing twelve months. So it had a cash runway of approximately 6 months from June 2021. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is Taal Distributed Information Technologies Growing?
It was quite stunning to see that Taal Distributed Information Technologies increased its cash burn by 213% over the last year. And that is all the more of a concern in light of the fact that operating revenue was actually down by 61% in the last year, as the company no doubt scrambles to change its fortunes. Considering these two factors together makes us nervous about the direction the company seems to be heading. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Taal Distributed Information Technologies Raise Cash?
Since Taal Distributed Information Technologies' revenue is down, and its cash burn is up, shareholders would quite reasonably be considering whether it can raise more money easily, if need be. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).
Taal Distributed Information Technologies has a market capitalisation of CA$140m and burnt through CA$12m last year, which is 8.3% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
How Risky Is Taal Distributed Information Technologies' Cash Burn Situation?
On this analysis of Taal Distributed Information Technologies' cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Taking a deeper dive, we've spotted 4 warning signs for Taal Distributed Information Technologies you should be aware of, and 1 of them is a bit unpleasant.
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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About CNSX:TAAL
Taal Distributed Information Technologies
TAAL Distributed Information Technologies Inc.
Mediocre balance sheet and slightly overvalued.
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