Here’s why we’re not at all concerned about ActiveOps’ cash burn situation (LON:AOM)

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There is no doubt that it is possible to make money by owning shares of unprofitable companies. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.

So should ActiveOps (LON:AOM) Are shareholders worried about its cash burn? 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. The first step is to compare its cash consumption with its cash reserves, to give us its “cash trail”.

See our latest analysis for ActiveOps

Does ActiveOps have a long cash trail?

A company’s cash track is the time it would take to deplete its cash reserves at its current rate of cash consumption. As of March 2022, ActiveOps had cash of £14m and no debt. Last year his cash burn was £2.7m. This means that it had a cash trail of around 5.1 years in March 2022. While this is only a measure of its cash burn situation, it certainly gives us the impression that holders have nothing to fear. Below you can see how its liquidity has changed over time.

debt-equity-history-analysis

Are ActiveOps revenues growing?

We’re hesitant to extrapolate on the recent trend to gauge its cash burn, as ActiveOps actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, in this moment. While not that surprising, we still think the 12% increase in operating income was positive. While the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analysts’ forecasts for the company.

Can ActiveOps raise more money easily?

While ActiveOps is posting solid revenue growth, it’s still worth considering how easily it could raise more cash, if only to fuel faster growth. Issuing new shares or going into debt are the most common ways for a listed company to raise more funds for its business. Many companies end up issuing new shares to fund their future growth. By looking at a company’s cash burn relative to its market cap, we get insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.

ActiveOps has a market cap of £53m and burned £2.7m last year, or 5.1% of the company’s 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 the ActiveOps cash burn situation?

As you can probably tell by now, we’re not too worried about ActiveOps’ cash burn. For example, we think its cash trail suggests the business is on the right track. According to this analysis, its revenue growth was its weakest feature, but that doesn’t worry us. After considering the various metrics mentioned in this report, we’re pretty comfortable with how the company is spending its money, as it appears to be on track to meet its medium-term needs. Readers should have a good understanding of business risks before investing in a stock, and we have spotted 2 warning signs for ActiveOps potential shareholders should consider before investing in a stock.

Sure ActiveOps 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.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

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.

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