Just because a business isn’t making money doesn’t mean the stock will go down. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.
So should Agrimin (ASX: AMN) Are shareholders worried about its consumption of cash? 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. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
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How long is Agrimin’s treasury track?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of December 2020, Agrimin had A $ 7.7 million in cash and no debt. Looking at last year, the company burned A $ 9.1 million. This means it had a cash flow trail of around 10 months as of December 2020. Notably, analysts predict Agrimin will break even (at free cash flow level) in around 4 years. This means that, unless the company quickly reduces its consumption of cash, it may well be looking to raise more cash. Pictured below, you can see how his cash holdings have changed over time.
How does Agrimin’s money consumption change over time?
While Agrimin recorded statutory turnover of AU $ 233,000 in the past year, he had no income of operations. For us this makes it a pre-income business, so we will look at its cash consumption trajectory as an assessment of its cash consumption situation. Given the length of the cash trail, we would interpret the 37% reduction in cash consumption over twelve months as prudent if not necessary for capital preservation. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
Can Agrimin easily raise more money?
Even though it recently reduced its cash consumption, shareholders should still consider how easy it would be for Agrimin to raise more cash in the future. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. Many companies end up issuing new shares to finance their future growth. By looking at one company’s cash consumption relative to its market capitalization, we get an idea of how many shareholders would be diluted if the company needed to raise enough cash to cover another’s cash consumption. year.
Agrimin has a market cap of A $ 98 million and spent A $ 9.1 million last year, or 9.3% of the market value of the company. That’s a small proportion, so we think the company would be able to raise more cash to finance its growth, with a bit of dilution, or even just borrow money.
Is Agrimin’s cash burn a concern?
On this analysis of Agrimin’s cash consumption, we think his cash consumption relative to market cap was reassuring, while his cash trail worries us a bit. Shareholders can be happy that analysts expect it to break even. We don’t think its consumption of cash is particularly problematic, but after looking at the range of factors in this article, we believe shareholders should watch how it evolves over time. Diving deeper, we spotted 7 warning signs for Agrimin you need to be aware, and 3 of them are important.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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