Stock Analysis

We Think Technical Olympic (ATH:OLYMP) Can Easily Afford To Drive Business 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 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. 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. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

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How Long Is Technical Olympic's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. Technical Olympic has such a small amount of debt that we'll set it aside, and focus on the €57m in cash it held at June 2020. Importantly, its cash burn was €7.0m over the trailing twelve months. Therefore, from June 2020 it had 8.2 years of cash runway. 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 March 16th 2021

Can Technical Olympic Raise More Cash Easily?

Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

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.

So, Should We Worry About Technical Olympic's Cash Burn?

Because Technical Olympic is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. Having said that, we can say that its cash runway was a real positive. In conclusion, we don't see why investors should be concerned with its cash burn, at least for some time. On another note, Technical Olympic has 3 warning signs (and 2 which are concerning) we think you should know about.

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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