Companies Like Mirriad Advertising (LON:MIRI) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, Mirriad Advertising (LON:MIRI) shareholders have done very well over the last year, with the share price soaring by 326%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for Mirriad Advertising shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Mirriad Advertising

When Might Mirriad Advertising Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Mirriad Advertising last reported its balance sheet in June 2020, it had zero debt and cash worth UK£14m. In the last year, its cash burn was UK£9.6m. Therefore, from June 2020 it had roughly 18 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. Depicted below, you can see how its cash holdings have changed over time.

How Is Mirriad Advertising's Cash Burn Changing Over Time?

Although Mirriad Advertising had revenue of UK£1.6m in the last twelve months, its operating revenue was only UK£1.6m in that time period. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. Even though it doesn't get us excited, the 24% reduction in cash burn year on year does suggest the company can continue operating for quite some time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Mirriad Advertising Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Mirriad Advertising to raise more cash in the future. Companies can raise capital through either debt or equity. 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.

Mirriad Advertising's cash burn of UK£9.6m is about 6.0% of its UK£160m market capitalisation. 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.

Is Mirriad Advertising's Cash Burn A Worry?

Mirriad Advertising appears to be in pretty good health when it comes to its cash burn situation. Not only was its cash burn reduction quite good, but its cash burn relative to its market cap was a real positive. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking an in-depth view of risks, we've identified 4 warning signs for Mirriad Advertising that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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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