Stock Analysis

Companies Like Technical Olympic (ATH:OLYMP) Can Afford To Invest In Growth

ATSE:OLYMP
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There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Technical Olympic (ATH:OLYMP) 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.

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Does Technical Olympic 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. As at June 2020, Technical Olympic had cash of €57m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was €7.0m over the trailing twelve months. That means it had a cash runway of about 8.2 years as of June 2020. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
ATSE:OLYMP Debt to Equity History November 28th 2020

How Hard Would It Be For Technical Olympic To Raise More Cash For 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).

Technical Olympic has a market capitalisation of €57m and burnt through €7.0m last year, which is 12% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Technical Olympic's Cash Burn A Worry?

Given it's an early stage company, we don't have a lot of data with which to judge Technical Olympic's cash burn. Having said that, we can say that its cash runway was a real positive. Overall, we don't think shareholders need to be worried about its cash burn in the near term. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Technical Olympic (2 make us uncomfortable!) 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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