Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. But while history praises these rare successes, those that fail are often forgotten; who remembers Pets.com?
So the natural question for Ansarada Group (ASX: AND) shareholders is whether they should be concerned with its rate of cash consumption. In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. The first step is to compare its cash consumption with its cash reserves, to give us its “cash flow track”.
See our latest analysis for the Ansarada group
Does the Ansarada group have a long cash flow trail?
A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. As of December 2020, Ansarada Group had A $ 21 million in cash and no debt. Looking at last year, the company burned AU $ 2.9 million. Therefore, as of December 2020, it had 7.3 years of cash flow. Most importantly, analysts believe that the Ansarada group will break even before that date. In this case, he may never reach the end of his cash trail. The image below shows how her cash balance has evolved over the past few years.
How is the Ansarada group developing?
The Ansarada group has managed to reduce its cash consumption by 73% over the past twelve months, which suggests that it is on the right track. But it was a little disconcerting to see operating revenues drop 4.8% during that time. We think he’s developing pretty well, on second thought. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at how the business is expected to grow over the next few years.
How difficult would it be for the Ansarada group to raise more cash for growth?
There is no doubt that the Ansarada Group appears to be in a fairly good position to manage its cash consumption, but even if this is only hypothetical, it is still worth wondering how easily it could raise more money. money to finance growth. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By looking at a company’s cash consumption relative to its market capitalization, we get an idea of how many shareholders would be diluted if the company were to raise enough cash to cover another year’s cash consumption.
As it has a market capitalization of A $ 106 million, the Ansarada Group’s US $ 2.9 million in cash is equivalent to around 2.7% of its market value. So he could almost certainly borrow a little to finance another year’s growth, or he could easily raise cash by issuing a few shares.
So, should we worry about the cash burn of the Ansarada group?
As you can probably see by now, we’re not too worried about the Ansarada Group’s cash consumption. In particular, we believe that its cash flow track is proof that the company has good control over its spending. While declining income gives us a reason to stop, the other measures we have discussed in this article form an overall positive picture. It is clearly very positive that analysts are predicting the company will soon reach its breakeven point. After looking at a series of factors in this article, we’re pretty relaxed about its consumption of cash, as the company appears to be in a good position to continue funding its growth. With an in-depth view of the risks, we have identified 2 warning signs for the Ansarada group that you need to know before you invest.
Of course, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analysts’ forecasts)
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