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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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, the natural question for B.R.A.I.N. Biotechnology Research and Information Network (ETR:BNN) shareholders is whether they should be concerned by its rate of 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for B.R.A.I.N. Biotechnology Research and Information Network
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2019, B.R.A.I.N. Biotechnology Research and Information Network had cash of 15m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through 5.4m. That means it had a cash runway of about 2.8 years as of June 2019. Notably, however, analysts think that B.R.A.I.N. Biotechnology Research and Information Network will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.
XTRA:BNN Historical Debt, December 2nd 2019
It was fairly positive to see that B.R.A.I.N. Biotechnology Research and Information Network reduced its cash burn by 39% during the last year. And considering that its operating revenue gained 45% during that period, that's great to see. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
We are certainly impressed with the progress B.R.A.I.N. Biotechnology Research and Information Network 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.
Since it has a market capitalisation of 175m, B.R.A.I.N. Biotechnology Research and Information Network's 5.4m in cash burn equates to about 3.1% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
It may already be apparent to you that we're relatively comfortable with the way B.R.A.I.N. Biotechnology Research and Information Network is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. While we always like to monitor cash burn for early stage companies, qualitative factors such as the CEO pay can also shed light on the situation. Click here to see free what the B.R.A.I.N. Biotechnology Research and Information Network CEO is paid..
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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Recommendation and review posted by G. Smith