We are not very worried about the cash burn rate of Imagion Biosystems (ASX:IBX)
Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although Amazon.com posted losses for many years after it listed, if you had bought and held the stock since 1999, you would have made a fortune. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
Given this risk, we thought we would examine whether Imagination Biosystems (ASX:IBX) shareholders should be concerned about its cash burn. In this report, we will consider the company’s annual negative free cash flow, which we will now refer to as “cash burn”. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.
Check out our latest analysis for Imagion Biosystems
How long does the Imagination Biosystems cash trail last?
You can calculate a company’s cash trail by dividing the amount of cash it has on hand by the rate at which it spends that money. When Imagion Biosystems published its last balance sheet in June 2021, it had no debt and cash worth A$14 million. Looking at last year, the company burned A$4.0 million. This means that it had a cash trail of around 3.5 years in June 2021. A cash trail of this length gives the company the time and space it needs to grow its business. You can see how his cash balance has changed over time in the image below.
How is Imagination Biosystems growing?
Imagion Biosystems has significantly increased its investments over the past year, with cash burn up 68%. But the silver lining is that operating revenue grew 29% during that time. Considering the above factors, the company does not fare badly when it comes to evaluating its evolution over time. In reality, this article only makes a short study of the company’s growth data. This historical profit and revenue chart shows how Imagion Biosystems has grown its business over time.
How easily can Imagion Biosystems raise funds?
There’s no doubt that Imagion Biosystems seems to be in a pretty good position to manage its cash burn, but even if it’s only hypothetical, it’s still worth asking how easily it could raise more cash. money to finance its growth. In general, a listed company can raise new funds by issuing shares or by going into debt. Many companies end up issuing new shares to fund their future growth. We can compare a company’s cash burn to its market capitalization to get an idea of how many new shares a company would need to issue to fund a year’s operations.
With a market capitalization of A$68 million, Imagion Biosystems’ cash burn of A$4.0 million equates to approximately 5.9% of its market value. Since this is a rather small percentage, it would probably be very easy for the company to finance another year’s growth by issuing new shares to investors, or even taking out a loan.
How risky is Imagion Biosystems’ cash burn situation?
It may already be obvious to you that we are relatively comfortable with the way Imagion Biosystems is burning cash. In particular, we think its cash trail stands out as proof that the company is on top of spending. While its growing cash burn gives us reason to pause, the other metrics we’ve discussed in this article paint an overall positive picture. After considering the various metrics mentioned in this report, we are quite comfortable with how the company is spending its money, as it appears to be on track to meet its medium-term needs. A thorough examination of the risks revealed 4 warning signs for Imagion Biosystems readers should consider before committing capital to this title.
Sure Imagination Biosystems may not be the best stock to buy. So you might want to see this free collection of companies offering a high return on equity, or this list of stocks that insiders buy.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.