Is Neptune Digital Assets (CVE:DASH) In A Good Position To Deliver On Growth Plans?

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Neptune Digital Assets (CVE:DASH) shareholders 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. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Neptune Digital Assets

Does Neptune Digital Assets 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. When Neptune Digital Assets last reported its balance sheet in May 2020, it had zero debt and cash worth CA$292k. In the last year, its cash burn was CA$375k. So it had a cash runway of approximately 9 months from May 2020. 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 Hard Would It Be For Neptune Digital Assets To Raise More Cash For Growth?

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. 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.

Neptune Digital Assets has a market capitalisation of CA$27m and burnt through CA$375k last year, which is 1.4% of the company's 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 Neptune Digital Assets' Cash Burn A Worry?

Because Neptune Digital Assets is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. Having said that, we can say that its cash burn relative to its market cap was a real positive. While cash burning companies are always comparatively risky, we think its cash burn situation seems ok, on balance. On another note, Neptune Digital Assets has 6 warning signs (and 3 which are a bit concerning) we think you should know about.

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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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