Here's Why We're Not Too Worried About Inversiones Agrícolas y Comerciales' (SNSE:IACSA) Cash Burn Situation

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Inversiones Agrícolas y Comerciales (SNSE:IACSA) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. 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 Inversiones Agrícolas y Comerciales

How Long Is Inversiones Agrícolas y Comerciales' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In December 2020, Inversiones Agrícolas y Comerciales had CL$2.0b in cash, and was debt-free. Looking at the last year, the company burnt through CL$1.1b. Therefore, from December 2020 it had roughly 22 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Inversiones Agrícolas y Comerciales Growing?

Some investors might find it troubling that Inversiones Agrícolas y Comerciales is actually increasing its cash burn, which is up 7.1% in the last year. At least the revenue was up 17% during the period, even if it wasn't up by much. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Inversiones Agrícolas y Comerciales is building its business over time.

How Hard Would It Be For Inversiones Agrícolas y Comerciales To Raise More Cash For Growth?

Inversiones Agrícolas y Comerciales seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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 CL$24b, Inversiones Agrícolas y Comerciales' CL$1.1b in cash burn equates to about 4.5% 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 Inversiones Agrícolas y Comerciales' Cash Burn Situation?

On this analysis of Inversiones Agrícolas y Comerciales' 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 factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 2 warning signs for Inversiones Agrícolas y Comerciales you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course Inversiones Agrícolas y Comerciales 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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