We Think Aker Carbon Capture (OB:ACC) Can Easily Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. For example, Aker Carbon Capture (OB:ACC) shareholders have done very well over the last year, with the share price soaring by 340%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

In light of its strong share price run, we think now is a good time to investigate how risky Aker Carbon Capture's cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Aker Carbon Capture

When Might Aker Carbon Capture Run Out Of Money?

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. When Aker Carbon Capture last reported its balance sheet in December 2020, it had zero debt and cash worth kr458m. Importantly, its cash burn was kr56m over the trailing twelve months. Therefore, from December 2020 it had 8.2 years of cash runway. Notably, however, analysts think that Aker Carbon Capture will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.

Is Aker Carbon Capture's Revenue Growing?

Since we don't have data on Aker Carbon Capture's cash burn last year, we'll focus on its revenue as measure of growth. In fact, operating revenue has stayed pretty steady over the last twelve months. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Aker Carbon Capture Raise More Cash Easily?

While Aker Carbon Capture is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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 kr13b, Aker Carbon Capture's kr56m in cash burn equates to about 0.4% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Aker Carbon Capture's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Aker Carbon Capture's cash burn. For example, we think its cash runway suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 2 warning signs for Aker Carbon Capture that you should be aware of before investing.

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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.
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