Yahoo Finance Here's Why Genomic Vision Société Anonyme (EPA:GV) Must Use Its Cash Wisely
Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Genomic Vision Société Anonyme (EPA:GV) shareholders 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. Let's start with an examination of the business's cash, relative to its cash burn.
See our latest analysis for Genomic Vision Société Anonyme
How Long Is Genomic Vision Société Anonyme'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. When Genomic Vision Société Anonyme last reported its balance sheet in June 2019, it had zero debt and cash worth €642k. In the last year, its cash burn was €6.0m. So it seems to us it had a cash runway of less than two months from June 2019. It's extremely surprising to us that the company has allowed its cash runway to get that short! We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. The image below shows how its cash balance has been changing over the last few years.
How Well Is Genomic Vision Société Anonyme Growing?
Some investors might find it troubling that Genomic Vision Société Anonyme is actually increasing its cash burn, which is up 3.4% in the last year. And we must say we find it concerning that operating revenue dropped 34% over the same period. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Genomic Vision Société Anonyme To Raise More Cash For Growth?
Given its revenue and free cash flow are both moving in the wrong direction, shareholders may well be wondering how easily Genomic Vision Société Anonyme could raise cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash to fund 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).
Since it has a market capitalisation of €10m, Genomic Vision Société Anonyme's €6.0m in cash burn equates to about 58% of its market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).
How Risky Is Genomic Vision Société Anonyme's Cash Burn Situation?
There are no prizes for guessing that we think Genomic Vision Société Anonyme's cash burn is a bit of a worry. Take, for example, its cash runway, which suggests the company may have difficulty funding itself, in the future. While not as bad as its cash runway, its increasing cash burn is also a concern, and considering everything mentioned above, we're struggling to find much to be optimistic about. The measures we've considered in this article lead us to believe its cash burn is actually quite concerning, and its weak cash position seems likely to cost shareholders one way or another. While we always like to monitor cash burn for early stage companies, qualitative factors such as the CEO pay can also shed light on the situation. Click here to see free what the Genomic Vision Société Anonyme CEO is paid..
Of course Genomic Vision Société Anonyme may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
