Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Bioxyne (ASX:BXN) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business's cash, relative to its cash burn.
How Long Is Bioxyne's 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. When Bioxyne last reported its balance sheet in June 2019, it had zero debt and cash worth AU$1.8m. Looking at the last year, the company burnt through AU$1.5m. That means it had a cash runway of around 15 months as of June 2019. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.
How Well Is Bioxyne Growing?
We reckon the fact that Bioxyne managed to shrink its cash burn by 28% over the last year is rather encouraging. And operating revenue was up by 7.1%, too. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Bioxyne is building its business over time.
How Hard Would It Be For Bioxyne To Raise More Cash For Growth?
Even though it seems like Bioxyne is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash to fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Bioxyne has a market capitalisation of AU$7.7m and burnt through AU$1.5m last year, which is 19% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
How Risky Is Bioxyne's Cash Burn Situation?
Bioxyne appears to be in pretty good health when it comes to its cash burn situation. Not only was its revenue growth quite good, but its cash burn reduction was a real positive. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. While it's important to consider hard data like the metrics discussed above, many investors would also be interested to note that Bioxyne insiders have been trading shares in the company. Click here to find out if they have been buying or selling.
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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