Companies Like Aerodrom Nikola Tesla a.d (BELEX:AERO) Can Afford To Invest In Growth

By
Simply Wall St
Published
May 08, 2021
BELEX:AERO
Source: Shutterstock

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Aerodrom Nikola Tesla a.d (BELEX:AERO) shareholders should be worried about its cash burn. 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'.

Check out our latest analysis for Aerodrom Nikola Tesla a.d

When Might Aerodrom Nikola Tesla a.d Run Out Of Money?

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. In December 2020, Aerodrom Nikola Tesla a.d had дин739m in cash, and was debt-free. Importantly, its cash burn was дин165m over the trailing twelve months. So it had a cash runway of about 4.5 years from December 2020. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
BELEX:AERO Debt to Equity History May 9th 2021

How Is Aerodrom Nikola Tesla a.d's Cash Burn Changing Over Time?

Although Aerodrom Nikola Tesla a.d reported revenue of дин307m last year, it didn't actually have any revenue from operations. That means we consider it a pre-revenue business, and we will focus our growth analysis on cash burn, for now. The good news, from a balance sheet perspective, is that it actually reduced its cash burn by 99% in the last twelve months. That might not be promising when it comes to business development, but it's good for the companies cash preservation. Admittedly, we're a bit cautious of Aerodrom Nikola Tesla a.d due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Aerodrom Nikola Tesla a.d Raise More Cash Easily?

There's no doubt Aerodrom Nikola Tesla a.d's rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Aerodrom Nikola Tesla a.d has a market capitalisation of дин35b and burnt through дин165m last year, which is 0.5% of the company's 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 Aerodrom Nikola Tesla a.d's Cash Burn?

As you can probably tell by now, we're not too worried about Aerodrom Nikola Tesla a.d's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Aerodrom Nikola Tesla a.d that potential shareholders should take into account before putting money into a stock.

Of course Aerodrom Nikola Tesla a.d 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.