Companies Like Altitude Group (LON:ALT) Can Afford To Invest In Growth

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. By way of example, Altitude Group (LON:ALT) has seen its share price rise 181% 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 Altitude Group's cash burn is. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Altitude Group

Does Altitude Group Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Altitude Group last reported its balance sheet in March 2021, it had zero debt and cash worth UK£2.1m. Looking at the last year, the company burnt through UK£569k. That means it had a cash runway of about 3.7 years as of March 2021. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Altitude Group Growing?

Happily, Altitude Group is travelling in the right direction when it comes to its cash burn, which is down 77% over the last year. And it could also show revenue growth of 16% in the same period. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how Altitude Group has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Altitude Group To Raise More Cash For Growth?

We are certainly impressed with the progress Altitude Group 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Altitude Group has a market capitalisation of UK£28m and burnt through UK£569k last year, which is 2.0% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Altitude Group's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Altitude Group's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its revenue growth 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. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Altitude Group (1 shouldn't be ignored!) 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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