Just because a business does not make any money, does not mean that the stock will go down. 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 BIMobject (STO:BIM) 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. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.
Does BIMobject Have A Long Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at December 2019, BIMobject had cash of kr142m and no debt. In the last year, its cash burn was kr122m. Therefore, from December 2019 it had roughly 14 months of cash runway. That’s not too bad, but it’s fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.
How Well Is BIMobject Growing?
BIMobject actually ramped up its cash burn by a whopping 79% in the last year, which shows it is boosting investment in the business. That does give us pause, and we can’t take much solace in the operating revenue growth of 15% in the same time frame. Considering both these factors, we’re not particularly excited by its growth profile. In reality, this article only makes a short study of the company’s growth data. You can take a look at how BIMobject has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For BIMobject To Raise More Cash For Growth?
BIMobject seems to be in a fairly good position, in terms of cash burn, but we still think it’s worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash to 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.
BIMobject’s cash burn of kr122m is about 15% of its kr806m market capitalisation. Given that situation, it’s fair to say the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
So, Should We Worry About BIMobject’s Cash Burn?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought BIMobject’s revenue growth 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. Separately, we looked at different risks affecting the company and spotted 6 warning signs for BIMobject (of which 2 can’t be ignored!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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