Is Zoomd Technologies (CVE:ZOMD) In A Good Position To Deliver On Growth Plans?

Just because a business does not make any money, does not mean that the stock will go down. 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.

Given this risk, we thought we'd take a look at whether Zoomd Technologies (CVE:ZOMD) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Zoomd Technologies

Does Zoomd Technologies Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. Zoomd Technologies has such a small amount of debt that we'll set it aside, and focus on the US$1.4m in cash it held at March 2021. Importantly, its cash burn was US$2.3m over the trailing twelve months. That means it had a cash runway of around 7 months as of March 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.

How Well Is Zoomd Technologies Growing?

Some investors might find it troubling that Zoomd Technologies is actually increasing its cash burn, which is up 17% in the last year. And we must say we find it concerning that operating revenue dropped 3.7% over the same period. Considering both these factors, we're not particularly excited by its growth profile. In reality, this article only makes a short study of the company's growth data. You can take a look at how Zoomd Technologies has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Zoomd Technologies To Raise More Cash For Growth?

Since Zoomd Technologies can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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.

Since it has a market capitalisation of US$33m, Zoomd Technologies' US$2.3m in cash burn equates to about 7.0% of its 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 Zoomd Technologies' Cash Burn Situation?

On this analysis of Zoomd Technologies' cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Taking a deeper dive, we've spotted 4 warning signs for Zoomd Technologies you should be aware of, and 2 of them are significant.

Of course Zoomd Technologies may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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