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Just because a business does not make any money, does not mean that the stock will go down. Indeed, iSignthis (ASX:ISX) stock is up 664% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given its strong share price performance, we think it's worthwhile for iSignthis shareholders to consider whether its cash burn is concerning. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for iSignthis
When Might iSignthis Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2019, iSignthis had AU$10.0m in cash, and was debt-free. In the last year, its cash burn was AU$5.9m. Therefore, from June 2019 it had roughly 20 months of cash runway. Importantly, though, the one analyst we see covering the stock thinks that iSignthis will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.
How Well Is iSignthis Growing?
iSignthis actually ramped up its cash burn by a whopping 66% in the last year, which shows it is boosting investment in the business. On the bright side, at least operating revenue was up 35% over the same period, giving some cause for hope. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can iSignthis Raise Cash?
iSignthis 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).