We believe American Pacific Borates (ASX: ABR) can afford to drive business growth


Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, American Pacific Borates Shareholders (ASX: ABR) have performed very well over the past year, with the share price climbing 105%. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.

In light of the sharp rise in its stock price, we believe the time has come to consider how risky American Pacific Borates’ cash consumption is. For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). Let’s start with a review of the company’s cash flow, relative to its cash consumption.

Check out our latest analysis for U.S. Pacific borates

How long is the American Pacific Borates cash trail?

A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. When American Pacific Borates last released its balance sheet in June 2021, it had no debt and cash worth AU $ 54 million. In the past year, his cash consumption was A $ 30 million. So there was a cash trail of about 22 months from June 2021. While this cash trail was not too much of a concern, sane holders would look into the distance and consider what would happen if the business ran out. cash. Pictured below, you can see how his cash holdings have changed over time.

ASX: ABR History of debt to equity October 26, 2021

How does American Pacific Borates’ silver consumption change over time?

While American Pacific Borates recorded statutory turnover of AU $ 66,000 in the past year, he had no income of operations. For us this makes it a pre-income business, so we will look at its cash consumption trajectory as an assessment of its cash consumption situation. Its cash consumption has exploded positively over the past year, up 260%. With this sharp increase in expenses, the company’s cash flow trail will narrow quickly as it depletes its cash reserves. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at how the business is expected to grow over the next few years.

Can American Pacific Borates Easily Raise More Money?

Given its cash-consuming trajectory, American Pacific Borates shareholders might consider how easily it could raise more cash, despite its strong liquidity trail. Businesses can raise capital through debt or equity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund its one-year operations.

Since it has a market capitalization of A $ 719 million, American Pacific Borates’ A $ 30 million cash consumption is equivalent to about 4.1% of its market value. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.

How risky is the American Pacific Borates cash burn situation?

Even though its growing consumption of cash makes us a little nervous, we are forced to mention that we thought American Pacific Borates’ consumption of cash relative to its market cap was relatively promising. While we are the kind of investors who are always a little concerned about the risks of money-burning companies, the measures we have discussed in this article leave us relatively comfortable with the American Pacific situation. Borates. Separately, we examined different risks affecting the business and identified 4 warning signs for American Pacific borates (1 of which is a bit disturbing!) that you should know about.

Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that insiders buy, and this list of growth stocks (according to analysts’ forecasts)

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

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