Yahoo Finance We're A Little Worried About Kopin's (NASDAQ:KOPN) 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, 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether Kopin (NASDAQ:KOPN) shareholders should be worried about its 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). Let's start with an examination of the business's cash, relative to its cash burn.
Check out our latest analysis for Kopin
When Might Kopin Run Out Of Money?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at September 2019, Kopin had cash of US$26m and no debt. Importantly, its cash burn was US$25m over the trailing twelve months. That means it had a cash runway of around 12 months as of September 2019. 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. The image below shows how its cash balance has been changing over the last few years.
How Well Is Kopin Growing?
On balance, we think it's mildly positive that Kopin trimmed its cash burn by 13% over the last twelve months. However, operating revenue was basically flat over that time period. Considering both these factors, we're not particularly excited by its growth profile. 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.
How Hard Would It Be For Kopin To Raise More Cash For Growth?
Kopin 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 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).
Kopin has a market capitalisation of US$33m and burnt through US$25m last year, which is 76% of the company's market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.
Is Kopin's Cash Burn A Worry?
On this analysis of Kopin's cash burn, we think its cash burn reduction was reassuring, while its cash burn relative to its market cap has us a bit worried. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. 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 Kopin CEO is paid..
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