We can easily understand why investors are drawn to unprofitable companies. For example, although software-as-a-service company Salesforce.com lost money for years while growing its recurring revenue, if you had held stocks since 2005 you would have done very well indeed. But the harsh reality is that a great many loss-making companies burn all their money and go bankrupt.

So should Other Nutrition Holdings (CVE: BABY) Are shareholders worried about their cash burn? In this report, we look at the company’s negative annual free cash flow and refer to it as “cash burn”. We’ll start by comparing his cash burn to his cash reserves to calculate his cash runway.

Check out our latest analysis for Else Nutrition Holdings

Does Else Nutrition Holdings have a long cash runway?

A cash runway is defined as the time it would take for a company to run out of money if it kept spending at its current cash burn rate. In March 2021, Else Nutrition Holdings had $ 21 million in cash and was debt free. Last year the cash burn was CAD 13 million. As a result, it had around 20 months of cash runway from March 2021. While this cash runway isn’t too worrisome, sensible owners would look into the distance and wonder what happens when the company runs out of cash. The picture below shows how cash on hand has changed over the past few years.

TSXV: BABY Debt-to-Equity Story July 13, 2021

How is Else Nutrition Holdings’ cash burn changing over time?

While it is great to see that Else Nutrition Holdings has already started generating income from operations, it only generated $ 2.3M last year, so we are currently not generating any significant income. Hence, for the purposes of this analysis, we will focus on how cash burn is tracked. In fact, it has skyrocketed its spending over the past year, increasing its cash usage by 197%. It is fair to say that some kind of rate of increase cannot be sustained for very long without putting a strain on the balance sheet. The decisive factor, however, is clearly whether the company will expand its business in the future. You might want to take a look how much the company is expected to grow in the next few years.

Can Else Nutrition Holdings Easily Raise More Money?

Given its cash burn trajectory, Else Nutrition Holdings shareholders may want to consider how easily it could raise more money despite its solid cash runway. Issuing new shares or taking on debt are the most common ways for a public company to raise more money for its business. Typically, a company will sell new shares of its own to raise cash and drive growth. By comparing a company’s annual cash burn with its total market capitalization, we can roughly estimate how many shares it would have to issue to run the company for another year (with the same burn rate).

Since Else Nutrition Holdings has a market capitalization of $ 284 million, its cash usage of $ 13 million is approximately 4.5% of its market value. That’s a small percentage, so we’re assuming the company would be able to raise more money to fund growth, or even just borrow some money, with a little dilution.

So should we be concerned about Else Nutrition Holdings’ cash burn?

In analyzing Else Nutrition Holdings’ cash burn, we think that cash burn relative to market cap was comforting, while increasing cash burn worries us a little. While we’re the kind of investors who always worry a little about the risks of companies burning cash, the metrics we’ve discussed in this article keep Else Nutrition Holdings’ position relatively safe. We examined and identified the risks in detail 3 warning signs for Else Nutrition Holdings that you should know before investing.

Naturally, You could find a fantastic investment by looking elsewhere. So check this out free List of Companies Buying Insider and this list of growth stocks (according to analyst forecasts)

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