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We're Interested To See How Biomerica (NASDAQ:BMRA) Uses Its Cash Hoard To Grow

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 Biomerica (NASDAQ:BMRA) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Biomerica

How Long Is Biomerica'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. When Biomerica last reported its balance sheet in May 2022, it had zero debt and cash worth US$5.9m. Importantly, its cash burn was US$651k over the trailing twelve months. Therefore, from May 2022 it had 9.1 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.

debt-equity-history-analysis
debt-equity-history-analysis

How Well Is Biomerica Growing?

Biomerica managed to reduce its cash burn by 88% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. And it is also great to see that the revenue is up a stonking 162% in the same time period. Considering these factors, we're fairly impressed by its growth trajectory. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Biomerica is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For Biomerica To Raise More Cash For Growth?

There's no doubt Biomerica seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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.

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Biomerica's cash burn of US$651k is about 1.4% of its US$47m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Biomerica's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Biomerica is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking a deeper dive, we've spotted 3 warning signs for Biomerica you should be aware of, and 1 of them is a bit concerning.

Of course Biomerica may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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