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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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether BluGlass (ASX:BLG) shareholders should 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for BluGlass
How Long Is BluGlass' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, BluGlass had cash of AU$3.8m and no debt. In the last year, its cash burn was AU$7.1m. So it had a cash runway of approximately 6 months from December 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.
How Well Is BluGlass Growing?
It was fairly positive to see that BluGlass reduced its cash burn by 25% during the last year. But it was the operating revenue growth of 240% that really shone. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how BluGlass is growing revenue over time by checking this visualization of past revenue growth.
Can BluGlass Raise More Cash Easily?
BluGlass 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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).
BluGlass has a market capitalisation of AU$39m and burnt through AU$7.1m last year, which is 18% 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.