Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. Still, only an idiot would ignore the risk of a loss-making company burning its cash too quickly.
So should Audiate Group (ASX: AD8) Are shareholders worried about its consumption of cash? For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Discover our latest analysis for Audinate Group
When could the Audinate group run out of money?
A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. As of June 2021, Audinate Group had A $ 66 million in cash and was debt free. In the past year, his cash consumption was AU $ 1.3 million. This means that he had a very many years cash flow trail from June 2021. Notably, however, analysts believe that the Audinate group will break even (at the level of free cash flow) before that date. In this case, he may never reach the end of his cash trail. The image below shows how her cash balance has evolved over the past few years.
How is the Audinate group growing?
Fortunately, Audinate Group is moving in the right direction when it comes to its cash consumption, which is down 63% compared to last year. And while not very exciting, it was still good to see 10% revenue growth during this time. We think he’s developing pretty well, on second thought. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at how the business is expected to grow over the next few years.
How difficult would it be for the Audinate group to raise more cash for growth?
We’re certainly impressed with the progress the Audinate Group has made over the past year, but it’s also worth considering how expensive it would be if it wanted to raise more cash to fund faster growth. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the business running for another year (at the same burn rate).
Audinate Group’s cash consumption of AU $ 1.3 million represents approximately 0.2% of its market capitalization of AU $ 738 million. This means that he could easily issue a few stocks to fund more growth and may well be able to borrow at a lower cost.
So, should we be worried about the Audinate group’s cash burn?
It may already be obvious to you that we are relatively comfortable with the way the Audinate Group burns its cash. In particular, we believe that its cash flow track is proof that the company has good control over its spending. Based on this analysis, its top line growth was its weakest feature, but that’s not of concern to us. It is clearly very positive to see that analysts are predicting the company will soon reach its breakeven point. After looking at a series of factors in this article, we’re pretty relaxed about its consumption of cash, as the company appears to be in a good position to continue funding its growth. While we always like to monitor the cash consumption of start-ups, qualitative factors such as CEO compensation can shed light on the situation as well. Click here to see free what the CEO of the Audinate group is paid ..
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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