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We can readily understand why investors are attracted to unprofitable companies. 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for AAC Clyde Space (STO:AAC) 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's cash, relative to its cash burn.
View our latest analysis for AAC Clyde Space
When Might AAC Clyde Space Run Out Of Money?
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. As at September 2019, AAC Clyde Space had cash of kr60m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was kr38m over the trailing twelve months. So it had a cash runway of approximately 19 months from September 2019. Importantly, though, analysts think that AAC Clyde Space will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Well Is AAC Clyde Space Growing?
On balance, we think it's mildly positive that AAC Clyde Space trimmed its cash burn by 16% over the last twelve months. On top of that, operating revenue was up 44%, making for a heartening combination It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For AAC Clyde Space To Raise More Cash For Growth?
AAC Clyde Space 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 to drive 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).