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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether Aker Carbon Capture (OB:ACC) shareholders should be worried about its 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
How Long Is Aker Carbon Capture's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Aker Carbon Capture last reported its balance sheet in September 2022, it had zero debt and cash worth kr1.4b. Looking at the last year, the company burnt through kr16m. So it had a very long cash runway of many years from September 2022. 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. Depicted below, you can see how its cash holdings have changed over time.
Is Aker Carbon Capture's Revenue Growing?
Given that Aker Carbon Capture actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. As it happens, shareholders have good reason to be optimistic about the future since the company increased its operating revenue by 85% over the last year. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Aker Carbon Capture To Raise More Cash For Growth?
There's no doubt Aker Carbon Capture's revenue growth is impressive but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.
Since it has a market capitalisation of kr7.0b, Aker Carbon Capture's kr16m in cash burn equates to about 0.2% 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.
So, Should We Worry About Aker Carbon Capture's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way Aker Carbon Capture is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. And even its cash burn relative to its market cap was very encouraging. 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. For us, it's always important to consider risks around cash burn rates. But investors should look at a whole range of factors when researching a new stock. For example, it could be interesting to see how much the Aker Carbon Capture CEO receives in total remuneration.
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.
Aker Carbon Capture
Aker Carbon Capture ASA provides products, technology, and solutions within the field of carbon capture technologies, utilization, and storage in Norway and internationally.
Exceptional growth potential with excellent balance sheet.