We are not very worried about the 1414 degree cash consumption rate (ASX: 14D)
There is no doubt that money can be made by owning shares of unprofitable companies. For example, although Amazon.com suffered losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
So the natural question for 1414 Degree (ASX: 14D) shareholders is whether they should be concerned with its rate of cash consumption. For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
See our latest analysis for 1414 degrees
When could 1,414 degrees run out of money?
A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. When 1414 Degrees last published its balance sheet in December 2020, it had no debt and cash worth AU $ 5.7 million. In the past year, his cash consumption was AU $ 3.7 million. So he had a cash trail of about 18 months from December 2020. It’s not that bad, but it’s fair to say that the end of the cash trail is in sight, unless the consumption of cash does not reduce significantly. Pictured below, you can see how his cash holdings have changed over time.
How does 1414 degree silver consumption change over time?
While it’s great to see that 1414 Degrees has already started generating operating income, last year it only produced AU $ 15,000, so we don’t think it generates significant income. for the time being. As a result, we think it’s a bit early to focus on revenue growth, so we’ll limit ourselves to looking at how cash consumption has changed over time. Reducing 60% of its cash consumption over the past twelve months may be good for protecting the balance sheet, but it hardly indicates imminent growth. Admittedly, we are a little cautious about 1414 Degrees because of its lack of significant operating income. So we generally prefer stocks from this list of stocks that analysts expect to grow.
Can 1414 degrees make more money easily?
There is no doubt that 1414 Degrees’ rapid reduction in cash consumption brings some comfort, but even if this is only hypothetical, it is still worth wondering how easily it could raise more money. to finance future growth. Businesses can raise capital through debt or equity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ââhow many new shares a company would need to issue to fund its one-year operations.
1414 Degrees has a market capitalization of A $ 30 million and spent A $ 3.7 million last year, or 12% of the market value of the company. As a result, we venture to think that the company could raise more cash for growth without too many problems, albeit at the cost of some dilution.
So, should we be worried about the silver consumption of 1414 degrees?
The good news is that we believe the cash position of 1414 Degrees gives shareholders real cause for optimism. On the one hand, we have a strong cash consumption relative to its market capitalization, while on the other hand, it can also boast a very large reduction in cash consumption. While we’re the kind of investors who are always a little concerned about the risks of money-burning companies, the metrics we’ve discussed in this article leave us relatively comfortable with the 1414 degree situation. Separately, we examined different risks affecting the business and identified 6 warning signs for 1414 degrees (3 of which are of concern!) that you should know about.
If you prefer to consult another company with better fundamentals, don’t miss this free list of interesting companies that have HIGH ROE and low debt or this list of stocks that are all expected to grow.
If you decide to trade 1414 degrees, use the cheapest platform * which is ranked # 1 overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
This Simply Wall St article is general in nature. 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.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.