We're Not Very Worried About A.H. Belo's (NYSE:AHC) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. 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.

So should A.H. Belo (NYSE:AHC) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for A.H. Belo

How Long Is A.H. Belo's Cash Runway?

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. A.H. Belo has such a small amount of debt that we'll set it aside, and focus on the US$42m in cash it held at December 2020. In the last year, its cash burn was US$4.7m. Therefore, from December 2020 it had 8.9 years of cash runway. 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.

How Well Is A.H. Belo Growing?

It was quite stunning to see that A.H. Belo increased its cash burn by 289% over the last year. While that's concerning on it's own, the fact that operating revenue was actually down 16% over the same period makes us positively tremulous. Considering these two factors together makes us nervous about the direction the company seems to be heading. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how A.H. Belo has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For A.H. Belo To Raise More Cash For Growth?

A.H. Belo 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

A.H. Belo's cash burn of US$4.7m is about 9.2% of its US$51m 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.

So, Should We Worry About A.H. Belo's Cash Burn?

On this analysis of A.H. Belo's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about A.H. Belo's situation. Taking an in-depth view of risks, we've identified 3 warning signs for A.H. Belo that you should be aware of before investing.

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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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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