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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for Tiga Gaming (GTSM:6536) shareholders is whether they should be concerned by its rate of 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'.
How Long Is Tiga Gaming's Cash Runway?
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. As at June 2019, Tiga Gaming had cash of NT$84m and no debt. Importantly, its cash burn was NT$11m over the trailing twelve months. So it had a cash runway of about 7.8 years from June 2019. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Tiga Gaming Growing?
It was fairly positive to see that Tiga Gaming reduced its cash burn by 26% during the last year. But it was the operating revenue growth of 160% that really shone. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how Tiga Gaming is growing revenue over time by checking this visualization of past revenue growth.
How Easily Can Tiga Gaming Raise Cash?
While Tiga Gaming seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash to 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).
Tiga Gaming's cash burn of NT$11m is about 2.4% of its NT$457m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
How Risky Is Tiga Gaming's Cash Burn Situation?
As you can probably tell by now, we're not too worried about Tiga Gaming's cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Its cash burn reduction wasn't quite as good, but was still rather encouraging! After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 6 warning signs for Tiga Gaming that potential shareholders should take into account before putting money into a stock.
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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