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We're A Little Worried About Intellabridge Technology's (CSE:INTL) Cash Burn Rate

Simply Wall St

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Intellabridge Technology (CSE:INTL) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business's cash, relative to its cash burn.

View our latest analysis for Intellabridge Technology

When Might Intellabridge Technology Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. Intellabridge Technology has such a small amount of debt that we'll set it aside, and focus on the US$32k in cash it held at September 2019. Looking at the last year, the company burnt through US$863k. That means it had a cash runway of under two months as of September 2019. To be frank we are alarmed by how short that cash runway is! The image below shows how its cash balance has been changing over the last few years.

CNSX:INTL Historical Debt April 28th 2020

How Is Intellabridge Technology's Cash Burn Changing Over Time?

Whilst it's great to see that Intellabridge Technology has already begun generating revenue from operations, last year it only produced US$905k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. The 66% reduction in its cash burn over the last twelve months could be interpreted as a sign that management are worried about running out of cash. Intellabridge Technology makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Intellabridge Technology Raise More Cash Easily?

There's no doubt Intellabridge Technology's rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash to drive 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.

Intellabridge Technology has a market capitalisation of US$603k and burnt through US$863k last year, which is 143% of the company's market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

Is Intellabridge Technology's Cash Burn A Worry?

As you can probably tell by now, we're rather concerned about Intellabridge Technology's cash burn. Take, for example, its cash runway, which suggests the company may have difficulty funding itself, in the future. But the silver lining was its cash burn reduction, which was encouraging. Looking at the metrics in this article all together, we consider its cash burn situation to be rather dangerous, and likely to cost shareholders one way or the other. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Intellabridge Technology (4 are concerning!) 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 companies insiders are buying, 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.