Cox Energy América. de (BMV:COXA) Is In A Strong Position To Grow Its Business

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Cox Energy América. de (BMV:COXA) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Cox Energy América. de

How Long Is Cox Energy América. de's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at June 2023, Cox Energy América. de had cash of Mex$162m and no debt. In the last year, its cash burn was Mex$62m. Therefore, from June 2023 it had 2.6 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

How Well Is Cox Energy América. de Growing?

Cox Energy América. de managed to reduce its cash burn by 64% over the last twelve months, which suggests it's on the right flight path. Arguably, however, the revenue growth of 114% during the period was even more impressive. Overall, we'd say its growth is rather impressive. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Cox Energy América. de is building its business over time.

How Hard Would It Be For Cox Energy América. de To Raise More Cash For Growth?

While Cox Energy América. de seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Since it has a market capitalisation of Mex$5.6b, Cox Energy América. de's Mex$62m in cash burn equates to about 1.1% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Cox Energy América. de's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Cox Energy América. de is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Cox Energy América. de that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.