It's easy to see why investors are attracted to unprofitable companies. For example, his software-as-a-service business Salesforce.com lost money for years while recurring revenue grew, but if you've owned the stock since 2005, you're sure would have worked very well. But while history celebrates the rare successes, the failures are often forgotten. Does anyone remember Pets.com?
you should lark distillation (ASX:LRK) shareholders worried about its cash burn? In this report, we consider the company's negative free cash flow for the year. We will refer to this as “cash burn” from now on. First, compare its cash burn to its cash reserves to determine its cash runway.
Check out our latest analysis for LARK Distillation.
Does LARK distillation have long financing potential?
Cash runway is defined as the time it would take for a company to run out of cash if it continued to spend at its current cash burn rate. As of December 2023, LARK Distilling had cash of AU$5.5m and no debt. Last year's cash burn was AU$4m. In other words, the cash runway was approximately 17 months as of December 2023. This isn't too bad, but unless cash burn significantly reduces, it's safe to say that the end of the cash runway is in sight. You can see how its cash holdings have changed over time, as shown below.
How well is LARK Distillation growing?
We think it's quite encouraging to see that LARK Distilling was able to reduce its cash burn by 39% in the last year. Unfortunately, however, operating revenue for the period decreased by 25%. Considering both of these factors, we're not particularly excited about its growth profile. The past is always worth studying, but it is the future that matters most. So it might be worth taking a peek at how much the company is expected to grow over the next few years.
Could LARK Distilling easily raise more cash?
Although LARK Distilling appears to be developing its business successfully, it would like to see how it can easily raise more capital to accelerate its growth. Generally, listed companies can raise new cash by issuing stock or taking on debt. Companies typically sell their new stock to raise cash and fuel growth. By comparing a company's cash burn to its market capitalization, you can find out how many new shares a company needs to issue to finance its operations for one year.
LARK Distilling has a market capitalization of AU$91m and burned through AU$4m, or 4.4% of its market value, in the last year. Because this is a low percentage, the company believes it can raise more cash to fund growth with some dilution or simply borrowing money.
How risky is LARK Distilling's cash burn situation?
While the declining revenue makes us a bit worried, we have to mention that we thought LARK Distilling's cash burn was relatively encouraging compared to its market capitalization. Cash burn companies are always on the risk side of things, but after considering all the factors we've discussed in this short article, we're not too worried about their cash burn rate. Readers should fully understand business risks before investing in stocks. Two warning signs about LARK distillation That's something potential shareholders should consider before committing to a stock.
of course LARK Distilled may not be the best stock to buy.So you might want to see this free A collection of companies with a high return on equity, or a list of stocks that insiders are buying.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
