We're Keeping An Eye On Boardwalktech Software's (CVE:BWLK) Cash Burn Rate

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.

So, the natural question for Boardwalktech Software (CVE:BWLK) 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. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Boardwalktech Software

How Long Is Boardwalktech Software's 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. Boardwalktech Software has such a small amount of debt that we'll set it aside, and focus on the US$2.2m in cash it held at September 2021. In the last year, its cash burn was US$3.0m. That means it had a cash runway of around 9 months as of September 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 Boardwalktech Software Growing?

Notably, Boardwalktech Software actually ramped up its cash burn very hard and fast in the last year, by 135%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 8.7%, making us very wary indeed. Taken together, we think these growth metrics are a little worrying. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Boardwalktech Software has developed its business over time by checking this visualization of its revenue and earnings history.

Can Boardwalktech Software Raise More Cash Easily?

Boardwalktech Software revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).

Since it has a market capitalisation of US$23m, Boardwalktech Software's US$3.0m in cash burn equates to about 13% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Boardwalktech Software's Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Boardwalktech Software's cash burn relative to its market cap was relatively promising. Summing up, we think the Boardwalktech Software's cash burn is a risk, based on the factors we mentioned in this article. On another note, Boardwalktech Software has 4 warning signs (and 2 which are significant) we think you should know about.

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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.