We believe Cyclopharm (ASX: CYC) can afford to drive business growth


There is no doubt that money can be made by owning shares of unprofitable companies. For example, although the software as a service company Salesforce.com lost money for years as it increased its recurring revenue, if you had owned stocks since 2005, you would have done very well. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.

So should Cyclopharm (ASX: CYC) Are shareholders worried about its consumption of cash? In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. The first step is to compare its cash consumption with its cash reserves, to give us its “cash flow track”.

Check out our latest review for Cyclopharm

Does Cyclopharm have a long cash flow trail?

A company’s cash trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. As of June 2021, Cyclopharm had AUS $ 32 million in cash and no debt. Importantly, his cash consumption was A $ 6.8 million in the past twelve months. This means he had a cash flow trail of about 4.6 years as of June 2021. A trail of this length gives the company the time and space it needs to grow its business. The image below shows how her cash balance has evolved over the past few years.

ASX: CYC Debt to Equity History October 22, 2021

How is Cyclopharm growing?

At first glance, it’s a bit worrying that Cyclopharm actually increased its cash usage by 23% year over year. The good news is that operating revenues have increased 29% in the past year, indicating that the company is gaining ground. Overall, we would say the business is improving over time. If the past is always worth studying, it is the future that matters most. You might want to take a look at the expected growth of the business over the next few years.

Can Cyclopharm easily raise more money?

There is no doubt that Cyclopharm appears to be in a good enough position to manage its cash consumption, but even if this is only hypothetical, it is still worth wondering how easily it could raise more money for finance growth. Businesses can raise capital through debt or equity. Many companies end up issuing new shares to fund their future growth. By looking at one company’s cash consumption relative to its market capitalization, we get an idea of ​​how many shareholders would be diluted if the company needed to raise enough cash to cover another’s cash consumption. year.

Cyclopharm’s cash consumption of A $ 6.8 million represents approximately 3.5% of its market capitalization of A $ 195 million. 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.

Is Cyclopharm’s silver consumption worrying?

As you can probably see by now, we are not too worried about Cyclopharm’s money consumption. In particular, we believe that its cash flow track is proof that the company has good control over its spending. While its increasing consumption of cash gives us a reason to stop, the other measures we have discussed in this article form an overall positive picture. Looking at all of the metrics in this article, together, we’re not worried about its rate of cash consumption; the business appears to be well above its medium-term spending needs. Separately, we examined different risks affecting the business and identified 3 warning signs for Cyclopharm (1 of which should not be ignored!) that you should know.

Sure Cyclopharm may not be the best stock to buy. So you might want to see this free a set of companies with a high return on equity, or that list of stocks that insiders buy.

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 any of the stocks mentioned.

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