Toast (NYSE: TOST) is in a strong position to grow its business

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There is no doubt that it is possible to make money by owning shares of unprofitable companies. For example, biotechnology and mining exploration companies often lose money for years before succeeding with a new treatment or mineral discovery. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.

So the natural question for Toast (NYSE:TOST) shareholders is whether they should be concerned about its cash burn rate. In this report, we will consider the company’s annual negative free cash flow, which we will now refer to as “cash burn”. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.

See our latest review for Toast

How long is the Toast cash trail?

You can calculate a company’s cash trail by dividing the amount of cash it has on hand by the rate at which it spends that money. As of December 2021, Toast had $1.3 billion in cash and no debt. Looking at last year, the company burned 17 million US dollars. It therefore had a very long cash trail of several years from December 2021. While this is only a measure of its cash burn situation, it certainly gives us the impression that holders have nothing to fear. Below you can see how its liquidity has changed over time.

NYSE: Historical Debt to Equity TOST April 11, 2022

How much does Toast grow?

Since we’re focusing on Toast’s cash burn, we’re pleased to see that he’s reduced his cash burn by 89%. And it’s also great to see that revenue has increased by 107% over the same period. Given these factors, we’re quite impressed with its growth trajectory. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at the company’s expected growth over the next few years.

How easily can Toast raise funds?

There’s no doubt that Toast seems to be in a pretty good position to manage its cash burn, but even if it’s only hypothetical, it’s still worth considering how easily it could raise more cash for finance growth. In general, a listed company can raise new funds by issuing shares or by going into debt. Typically, a company will sell new stock on its own to raise cash and drive growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.

Toast’s cash burn of US$17 million represents approximately 0.2% of its market capitalization of US$9.6 billion. This means it could easily issue a few shares to fund more growth and may well be able to borrow cheaply.

So should we be worried about Toast’s cash burn?

As you can probably tell by now, we’re not too worried about Toast’s cash burn. For example, we think its reduced cash burn suggests the business is on the right track. But it’s fair to say that its cash burn relative to its market capitalization was also very reassuring. After looking at a range of factors in this article, we’re pretty relaxed about its cash burn, as the company appears to be in a good position to continue funding its growth. It is important for readers to be aware of the risks that can affect company operations, and we have selected 2 warning signs for Toast investors need to know when investing in the stock.

Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of companies that insiders are buying, and this list of growth stocks (based on analyst forecasts)

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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