We're Keeping An Eye On BiBBInstruments' (NGM:BIBB) Cash Burn Rate

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 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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should BiBBInstruments (NGM:BIBB) shareholders 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.

Check out our latest analysis for BiBBInstruments

When Might BiBBInstruments Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2020, BiBBInstruments had kr12m in cash, and was debt-free. Looking at the last year, the company burnt through kr16m. So it had a cash runway of approximately 9 months from June 2020. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.

How Is BiBBInstruments' Cash Burn Changing Over Time?

In our view, BiBBInstruments doesn't yet produce significant amounts of operating revenue, since it reported just kr354k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. As it happens, the company's cash burn reduced by 10% over the last year, which suggests that management may be mindful of the risks of their depleting cash reserves. BiBBInstruments makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can BiBBInstruments Raise More Cash Easily?

While BiBBInstruments is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).

BiBBInstruments' cash burn of kr16m is about 8.8% of its kr176m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is BiBBInstruments' Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought BiBBInstruments' cash burn relative to its market cap was relatively promising. 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. Taking a deeper dive, we've spotted 6 warning signs for BiBBInstruments you should be aware of, and 3 of them are significant.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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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