We Think Inversiones Agrícolas y Comerciales (SNSE:IACSA) Needs To Drive Business Growth Carefully

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. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Inversiones Agrícolas y Comerciales (SNSE:IACSA) 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. 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. When Inversiones Agrícolas y Comerciales last reported its balance sheet in September 2020, it had zero debt and cash worth CL$2.5b. Importantly, its cash burn was CL$1.5b over the trailing twelve months. So it had a cash runway of approximately 21 months from September 2020. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Inversiones Agrícolas y Comerciales Growing?

Notably, Inversiones Agrícolas y Comerciales actually ramped up its cash burn very hard and fast in the last year, by 132%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 4.9%, 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. This graph of historic earnings and revenue shows how Inversiones Agrícolas y Comerciales is building its business over time.

How Easily Can Inversiones Agrícolas y Comerciales Raise Cash?

Even though it seems like Inversiones Agrícolas y Comerciales is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Inversiones Agrícolas y Comerciales has a market capitalisation of CL$24b and burnt through CL$1.5b last year, which is 6.2% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Inversiones Agrícolas y Comerciales' Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Inversiones Agrícolas y Comerciales' cash burn relative to its market cap was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Inversiones Agrícolas y Comerciales' situation. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Inversiones Agrícolas y Comerciales (1 is concerning!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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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