Yahoo Finance Is AnalytixInsight (CVE:ALY) In A Good Position To Invest In Growth?
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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for AnalytixInsight (CVE:ALY) shareholders is whether they should be concerned by its rate of 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). Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for AnalytixInsight
Does AnalytixInsight Have A Long 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 2022, AnalytixInsight had cash of CA$4.3m and no debt. Looking at the last year, the company burnt through CA$3.4m. So it had a cash runway of approximately 15 months from June 2022. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.
How Well Is AnalytixInsight Growing?
One thing for shareholders to keep front in mind is that AnalytixInsight increased its cash burn by 343% in the last twelve months. While that's concerning on it's own, the fact that operating revenue was actually down 44% over the same period makes us positively tremulous. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how AnalytixInsight is building its business over time.
How Easily Can AnalytixInsight Raise Cash?
AnalytixInsight revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).
AnalytixInsight's cash burn of CA$3.4m is about 10% of its CA$33m 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 AnalytixInsight's Cash Burn?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought AnalytixInsight's cash burn relative to its market cap was relatively promising. Summing up, we think the AnalytixInsight's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 3 warning signs for AnalytixInsight you should be aware of, and 1 of them is potentially serious.
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. 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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