We're Interested To See How Mirriad Advertising (LON:MIRI) Uses Its Cash Hoard To Grow

Just because a business does not make any money, does not mean that the stock will go down. By way of example, Mirriad Advertising (LON:MIRI) has seen its share price rise 239% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Mirriad Advertising's cash burn is. 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.

See our latest analysis for Mirriad Advertising

Does Mirriad Advertising 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. When Mirriad Advertising last reported its balance sheet in December 2020, it had zero debt and cash worth UK£35m. In the last year, its cash burn was UK£8.1m. So it had a cash runway of about 4.4 years from December 2020. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Mirriad Advertising Growing?

It was fairly positive to see that Mirriad Advertising reduced its cash burn by 27% during the last year. And arguably the operating revenue growth of 91% was even more impressive. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Mirriad Advertising Raise Cash?

We are certainly impressed with the progress Mirriad Advertising has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Mirriad Advertising's cash burn of UK£8.1m is about 5.8% of its UK£139m 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?

As you can probably tell by now, we're not too worried about Mirriad Advertising's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Its cash burn reduction wasn't quite as good, but was still rather encouraging! After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 4 warning signs for Mirriad Advertising that potential shareholders should take into account before putting money into a stock.

Of course Mirriad Advertising 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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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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