In This Article:
Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given this risk, we thought we'd take a look at whether ANGLE (LON:AGL) shareholders should be worried about its 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for ANGLE
How Long Is ANGLE's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2020, ANGLE had UK£29m in cash, and was debt-free. Importantly, its cash burn was UK£8.4m over the trailing twelve months. So it had a cash runway of about 3.4 years from December 2020. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.
How Well Is ANGLE Growing?
It was fairly positive to see that ANGLE reduced its cash burn by 38% during the last year. Unfortunately, however, operating revenue declined by 13% during the period. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Easily Can ANGLE Raise Cash?
We are certainly impressed with the progress ANGLE 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. Many companies end up issuing new shares to fund future 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.
ANGLE's cash burn of UK£8.4m is about 3.5% of its UK£239m market capitalisation. 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.