Here's Why We're Watching Bio Meat Foodtech - Limited Partnership's (TLV:BIMT) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Bio Meat Foodtech - Limited Partnership (TLV:BIMT) shareholders 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Bio Meat Foodtech - Limited Partnership

Does Bio Meat Foodtech - Limited Partnership 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 2024, Bio Meat Foodtech - Limited Partnership had cash of ₪2.7m and no debt. Looking at the last year, the company burnt through ₪3.4m. So it had a cash runway of approximately 9 months from June 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

How Is Bio Meat Foodtech - Limited Partnership's Cash Burn Changing Over Time?

In our view, Bio Meat Foodtech - Limited Partnership doesn't yet produce significant amounts of operating revenue, since it reported just ₪358k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. As it happens, the company's cash burn reduced by 11% over the last year, which suggests that management may be mindful of the risks of their depleting cash reserves. Bio Meat Foodtech - Limited Partnership makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can Bio Meat Foodtech - Limited Partnership Raise Cash?

While Bio Meat Foodtech - Limited Partnership is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel 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.

Bio Meat Foodtech - Limited Partnership's cash burn of ₪3.4m is about 3.8% of its ₪89m 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.

How Risky Is Bio Meat Foodtech - Limited Partnership's Cash Burn Situation?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Bio Meat Foodtech - Limited Partnership's cash burn relative to its market cap was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, Bio Meat Foodtech - Limited Partnership has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.

Of course Bio Meat Foodtech - Limited Partnership 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 with high insider ownership.

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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.