We Think Cascadia Blockchain Group (CSE:CK) Needs To Drive Business Growth Carefully
We can readily understand why investors are attracted to unprofitable companies. By way of example, Cascadia Blockchain Group (CSE:CK) has seen its share price rise 510% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
In light of its strong share price run, we think now is a good time to investigate how risky Cascadia Blockchain Group's cash burn is. 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.
View our latest analysis for Cascadia Blockchain Group
How Long Is Cascadia Blockchain Group's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Cascadia Blockchain Group last reported its balance sheet in October 2019, it had zero debt and cash worth CA$605k. In the last year, its cash burn was CA$1.8m. That means it had a cash runway of around 4 months as of October 2019. That's a very short cash runway which indicates an imminent need to douse the cash burn or find more funding. Depicted below, you can see how its cash holdings have changed over time.
How Is Cascadia Blockchain Group's Cash Burn Changing Over Time?
Cascadia Blockchain Group didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. It's possible that the 15% reduction in cash burn over the last year is evidence of management tightening their belts as cash reserves deplete. Cascadia Blockchain Group makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Easily Can Cascadia Blockchain Group Raise Cash?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Cascadia Blockchain Group to raise more cash in the future. 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Since it has a market capitalisation of CA$22m, Cascadia Blockchain Group's CA$1.8m in cash burn equates to about 8.1% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
How Risky Is Cascadia Blockchain Group's Cash Burn Situation?
On this analysis of Cascadia Blockchain Group's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Cascadia Blockchain Group (4 shouldn't be ignored!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
