Yahoo Finance Sealand Capital Galaxy (LON:SCGL) Will Have To Spend Its Cash Wisely
There's no doubt that money can be made by owning shares of unprofitable businesses. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for Sealand Capital Galaxy (LON:SCGL) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Sealand Capital Galaxy
Does Sealand Capital Galaxy Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2019, Sealand Capital Galaxy had UK£62k in cash, and was debt-free. In the last year, its cash burn was UK£478k. That means it had a cash runway of around 2 months as of June 2019. It's extremely surprising to us that the company has allowed its cash runway to get that short! The image below shows how its cash balance has been changing over the last few years.
How Is Sealand Capital Galaxy's Cash Burn Changing Over Time?
In our view, Sealand Capital Galaxy doesn't yet produce significant amounts of operating revenue, since it reported just UK£587k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. We'd venture that the 68% reduction in cash burn over the last year shows that management are, at least, mindful of its ongoing need for cash. Sealand Capital Galaxy makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Easily Can Sealand Capital Galaxy Raise Cash?
While we're comforted by the recent reduction evident from our analysis of Sealand Capital Galaxy's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.
Sealand Capital Galaxy has a market capitalisation of UK£2.0m and burnt through UK£478k last year, which is 24% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.
How Risky Is Sealand Capital Galaxy's Cash Burn Situation?
On this analysis of Sealand Capital Galaxy's cash burn, we think its cash burn reduction was reassuring, while its cash runway has us a bit worried. After looking at that range of measures, we think shareholders should be extremely attentive to how the company is using its cash, as the cash burn makes us uncomfortable. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Sealand Capital Galaxy (4 don't sit too well with us!) that you should be aware of before investing here.
Of course Sealand Capital Galaxy 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.
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.
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