Just because a company isn’t making profits doesn’t mean its stock price will go down. For example, if you’ve owned the stock since 2005, Salesforce.com, a software-as-a-service business, has lost money for years while its recurring revenue has grown, but it certainly has It would have worked fine. That being said, there are risks involved, as unprofitable companies can burn through all their cash and go into distress.
you should global atomic (TSE:GLO) shareholders worried about cash burn? In this article, cash burn refers to the annual rate at which an unprofitable company spends cash to fund growth. Free cash flow is negative. Let’s start by examining the company’s cash compared to its cash burn.
Check out our latest analysis for Global Atomic.
How long is Global Atomic’s cash runway?
Cash runway is defined as the time it would take for a company to run out of cash if it continued to spend at its current cash burn rate. As of December 2023, Global Atomic had C$25 million in cash and no debt. Its cash burn was CA$47m last year. In other words, the cash runway as of December 2023 was approximately 6 months. Frankly, this kind of short runway worries us because it indicates that the company will need to raise money soon if it doesn’t significantly reduce its cash burn. Importantly, extrapolating recent cash burn trends suggests a significantly longer cash runway. You can see how its cash balance has changed over time in the image below.
How has Global Atomic’s cash burn changed over time?
In our view, Global Atomic hasn’t yet generated significant operating revenue, as it only reported CA$690,000 in the last twelve months. Therefore, in this analysis we will focus on how its cash burn is tracking. Last year, the company’s cash burn actually increased by 31%. This suggests that management is ramping up investment for future growth, but not very quickly. That’s not necessarily a bad thing, but investors should be mindful of the fact that it shortens the funding runway. Global Atomic’s low actual operating revenue makes us a little worried. Therefore, we typically prioritize stocks on this list of stocks that analysts predict will grow.
Can Global Atomic easily raise more capital?
Given that the company’s cash burn is going in the wrong direction, Global Atomic shareholders may want to consider ahead of time when the company will need to raise more cash. The most common ways for publicly traded companies to raise more money for their operations is by issuing new shares or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn compared to its market capitalization, insight into how much shareholders will be diluted if the company needs to raise enough cash to cover another year’s cash burn. It can be obtained.
Global Atomic’s market capitalization is CA$461 million, so Global Atomic’s cash burn of CA$47 million represents about 10% of its market value. As a result, we’d venture that the company could raise more cash for growth without too much trouble, even at the cost of some dilution.
Are you worried about Global Atomic’s cash burn?
In this analysis of Global Atomic’s cash burn, while we think its cash burn relative to market capitalization is reassuring, we’re a bit concerned about its cash burn. Looking at the factors mentioned in this short report, we think its cash burn is a bit risky, which makes us a bit nervous about this stock. Upon further investigation, 4 warning signs for Global Atomic Three of them are concerning.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
