There's no doubt that money can be made by owning shares of unprofitable businesses. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Blackbird (LON:BIRD) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
When Might Blackbird Run Out Of Money?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2021, Blackbird had UK£13m in cash, and was debt-free. Looking at the last year, the company burnt through UK£1.4m. Therefore, from December 2021 it had 9.2 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.
How Well Is Blackbird Growing?
On balance, we think it's mildly positive that Blackbird trimmed its cash burn by 8.5% over the last twelve months. And considering that its operating revenue gained 32% during that period, that's great to see. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Blackbird is building its business over time.
How Easily Can Blackbird Raise Cash?
While Blackbird seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Blackbird's cash burn of UK£1.4m is about 2.3% of its UK£61m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
Is Blackbird's Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Blackbird is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 3 warning signs for Blackbird that investors should know when investing in the stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.