We're Keeping An Eye On BenevolentAI société anonyme's (AMS:BAI) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should BenevolentAI société anonyme (AMS:BAI) shareholders 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.

Check out our latest analysis for BenevolentAI société anonyme

How Long Is BenevolentAI société anonyme'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. When BenevolentAI société anonyme last reported its balance sheet in December 2021, it had zero debt and cash worth UK£41m. In the last year, its cash burn was UK£50m. So it had a cash runway of approximately 10 months from December 2021. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is BenevolentAI société anonyme Growing?

At first glance it's a bit worrying to see that BenevolentAI société anonyme actually boosted its cash burn by 38%, year on year. And we must say we find it concerning that operating revenue dropped 33% over the same period. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how BenevolentAI société anonyme has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can BenevolentAI société anonyme Raise Cash?

Since BenevolentAI société anonyme can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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. 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.

Since it has a market capitalisation of UK£663m, BenevolentAI société anonyme's UK£50m in cash burn equates to about 7.5% of its market value. 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.

So, Should We Worry About BenevolentAI société anonyme's Cash Burn?

On this analysis of BenevolentAI société anonyme's cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. An in-depth examination of risks revealed 3 warning signs for BenevolentAI société anonyme that readers should think about before committing capital to this 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.