We can readily understand why investors are attracted to unprofitable companies. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should BLIS Technologies (NZSE:BLT) shareholders 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
When Might BLIS Technologies Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. BLIS Technologies has such a small amount of debt that we'll set it aside, and focus on the NZ$8.8m in cash it held at September 2022. Looking at the last year, the company burnt through NZ$693k. That means it had a cash runway of very many years as of September 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.
How Well Is BLIS Technologies Growing?
BLIS Technologies managed to reduce its cash burn by 71% over the last twelve months, which suggests it's on the right flight path. And while hardly exciting, it was still good to see revenue growth of 7.5% during that time. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how BLIS Technologies is building its business over time.
How Hard Would It Be For BLIS Technologies To Raise More Cash For Growth?
We are certainly impressed with the progress BLIS Technologies has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund 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).
BLIS Technologies has a market capitalisation of NZ$37m and burnt through NZ$693k last year, which is 1.9% of the company's market value. 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.
Is BLIS Technologies' Cash Burn A Worry?
As you can probably tell by now, we're not too worried about BLIS Technologies' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for BLIS Technologies (1 is significant!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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