Yahoo Finance We're Keeping An Eye On Solid Power's (NASDAQ:SLDP) Cash Burn Rate
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for Solid Power (NASDAQ:SLDP) shareholders is whether they should be concerned by its rate of 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for Solid Power
How Long Is Solid Power's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2023, Solid Power had US$176m in cash, and was debt-free. In the last year, its cash burn was US$93m. So it had a cash runway of approximately 23 months from December 2023. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Solid Power Growing?
Over the last year, Solid Power maintained its cash burn at a fairly steady level. And in that context its operating revenue grew by 48%, which shows at least some progress. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Solid Power Raise More Cash Easily?
Solid Power seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Solid Power's cash burn of US$93m is about 31% of its US$299m market capitalisation. 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.
So, Should We Worry About Solid Power's Cash Burn?
On this analysis of Solid Power's cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Solid Power's situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Solid Power (of which 1 is significant!) you should know about.
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.
