BSEL Infrastructure Realty (NSE:BSELINFRA) Is Very Risky Based On Its Cash Burn
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should BSEL Infrastructure Realty (NSE:BSELINFRA) shareholders be worried about its cash burn? 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.
Check out our latest analysis for BSEL Infrastructure Realty
Does BSEL Infrastructure Realty Have A Long Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When BSEL Infrastructure Realty last reported its balance sheet in March 2019, it had zero debt and cash worth ₹26m. Looking at the last year, the company burnt through ₹76m. That means it had a cash runway of around 4 months as of March 2019. That's a very short cash runway which indicates an imminent need to douse the cash burn or find more funding. You can see how its cash balance has changed over time in the image below.
How Hard Would It Be For BSEL Infrastructure Realty To Raise More Cash For Growth?
Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash to fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
BSEL Infrastructure Realty has a market capitalisation of ₹86m and burnt through ₹76m last year, which is 88% of the company's market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.
So, Should We Worry About BSEL Infrastructure Realty's Cash Burn?
Given it's an early stage company, we don't have a lot of data with which to judge BSEL Infrastructure Realty's cash burn. However, it is fair to say that its cash burn relative to its market cap made us nervous. For us, this company has really risky cash burn and so we do feel a bit afraid for those who own shares. While we always like to monitor cash burn for early stage companies, qualitative factors such as the CEO pay can also shed light on the situation. Click here to see free what the BSEL Infrastructure Realty CEO is paid..
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)
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