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Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for AnalytixInsight (CVE:ALY) 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'. Let's start with an examination of the business' cash, relative to its cash burn.
When Might AnalytixInsight Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2021, AnalytixInsight had cash of CA$6.1m and no debt. In the last year, its cash burn was CA$2.1m. That means it had a cash runway of about 2.9 years as of December 2021. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.
How Well Is AnalytixInsight Growing?
AnalytixInsight boosted investment sharply in the last year, with cash burn ramping by 62%. While that's concerning on it's own, the fact that operating revenue was actually down 5.6% over the same period makes us positively tremulous. Considering both these metrics, we're a little concerned about how the company is developing. 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 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Since it has a market capitalisation of CA$38m, AnalytixInsight's CA$2.1m in cash burn equates to about 5.4% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
So, Should We Worry About AnalytixInsight's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way AnalytixInsight is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 5 warning signs for AnalytixInsight (of which 1 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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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.