There's no doubt that money can be made by owning shares of unprofitable businesses. 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.
So should Kyckr (ASX:KYK) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for Kyckr
How Long Is Kyckr'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. As at June 2021, Kyckr had cash of AU$5.3m and no debt. Importantly, its cash burn was AU$4.4m over the trailing twelve months. So it had a cash runway of approximately 15 months from June 2021. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Kyckr Growing?
Kyckr reduced its cash burn by 5.8% during the last year, which points to some degree of discipline. And operating revenue was up by 13% too. On balance, we'd say the company is improving over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Kyckr has developed its business over time by checking this visualization of its revenue and earnings history.
How Easily Can Kyckr Raise Cash?
While Kyckr seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel 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.
Kyckr's cash burn of AU$4.4m is about 16% of its AU$28m market capitalisation. 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.
Is Kyckr's Cash Burn A Worry?
The good news is that in our view Kyckr's cash burn situation gives shareholders real reason for optimism. Not only was its cash burn relative to its market cap quite good, but its revenue growth 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. Taking a deeper dive, we've spotted 4 warning signs for Kyckr you should be aware of, and 2 of them are potentially serious.