Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. Indeed, Neptune digital assets The stock (CVE: NDA) has risen 112% in the past year, delivering solid gains to shareholders. But while the successes are well known, investors should not ignore the myriad of unprofitable companies that simply burn all their money and collapse.
Given the strong performance of its share price, we believe it is worthwhile for Neptune Digital Assets shareholders to consider whether its cash consumption is of concern. In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Check out our latest analysis for Neptune’s digital assets
When might Neptune’s digital assets run out of money?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of August 2021, Neptune Digital Assets had C $ 3.5 million in cash and no debt. Importantly, its cash consumption amounted to C $ 1.1 million over the past twelve months. Therefore, as of August 2021, he had 3.3 years of cash flow. A lead of this length gives the company the time and space it needs to develop its business. You can see how his cash balance has changed over time in the image below.
How does Neptune Digital Assets’ cash consumption change over time?
In our opinion, Neptune Digital Assets is not yet producing significant operating revenues, having only brought in C $ 359,000 in the past twelve months. 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. The surge in cash consumption of 187% year over year certainly puts our nerves to the test. It’s fair to say that some sort of rate of increase cannot be sustained for very long without putting pressure on the balance sheet. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at how the business is expected to grow over the next few years.
Would it be difficult for Neptune’s digital assets to raise more cash for growth?
Given its cash-consuming trajectory, shareholders of Neptune Digital Assets may want to consider how easily it could raise more cash, despite its strong liquidity trail. Businesses can raise capital through debt or equity. Typically, a company itself will sell new stocks to raise funds and drive growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the business running for another year (at the same burn rate).
Neptune Digital Assets’ cash consumption of C $ 1.1 million represents approximately 1.6% of its market capitalization of C $ 65 million. This means that he could easily issue a few stocks to fund more growth and may well be able to borrow more cheaply.
Is Neptune Digital Assets’ Silver Consumption Worrisome?
As you can probably see by now, we’re not too worried about the cash consumption of Neptune Digital Assets. In particular, we believe that its cash flow track stands out as proof that the company has good control over its spending. Although we have to admit that its increase in money consumption is a bit worrying, the other factors mentioned in this article provide great comfort in regards to money consumption. After taking into account the various metrics mentioned in this report, we are quite comfortable with how the company spends its money. On another note, we conducted a thorough investigation of the company and identified 4 warning signs for Neptune digital assets (1 shouldn’t be ignored!) Which you should be aware of before investing here.
Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that insiders buy, and this list of growth stocks (according to analysts’ forecasts)
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock 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.