That’s why we’re not at all concerned about Coast Entertainment Holdings’ (ASX:CEH) cash burn situation

There is 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 achieving success with a new treatment or mineral discovery. But while history celebrates these rare successes, those who fail are often forgotten; who remembers Pets.com?

It should Coast Entertainment Holdings (ASX: CEH) shareholders worried about cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to finance its growth; its negative free cash flow. Let’s start by examining the cash flow of the business versus its cash burn.

Check out our latest analysis on Coast Entertainment Holdings

Does Coast Entertainment Holdings have a long way to go for cash?

Cash is defined as the time it will take for a company to run out of cash if it continues to spend at its current cash burn rate. In June 2023, Coast Entertainment Holdings had A$135 million in cash and no debt. Importantly, cash burn totaled A$32 million over the past twelve months. That means it has had cash for about 4.3 years as of June 2023. Importantly, however, analysts believe Coast Entertainment Holdings will break even before then. In this case, it may never reach the end of its monetary run. In the image below, you can see how his cash holdings have changed over time.

ASX: CEH Debt to Equity History 29 Dec 2023

Is Coast Entertainment Holdings’ revenue growing?

Given that Coast Entertainment Holdings actually had positive free cash flow last year before burning cash this year, we’ll focus on its operating income to get a measure of the business trajectory. As it happens, shareholders have good reason to be optimistic about the future, as the company has increased its operating income by 70% over the past year. While the past is always worth studying, the future is most important. For this reason, it makes a lot of sense to look at our analysts’ forecasts for the company.

Can Coast Entertainment Holdings raise more money easily?

While Coast Entertainment Holdings’ revenue growth does shine brightly, it’s important not to overlook the possibility that it may need more cash at some point, if only to optimize its growth plans. Generally speaking, a listed business can raise new money by issuing shares or taking on debt. Many companies end up issuing new stock to fund future growth. We can compare a company’s cash burns to its market capitalization to get an idea of ​​how many new shares a company would need to issue to finance a year’s worth of operations.

With a market capitalization of A$212 million, Coast Entertainment Holdings’ A$32 million cash burn equates to about 15% of its market value. As a result, we’d dare the company to raise more money for growth without much trouble, albeit at the cost of some dilution.

So should we be worried about Coast Entertainment Holdings’ cash burns?

It may be clear to you by now that we’re relatively happy with the way Coast Entertainment Holdings spends its money. Specifically, we think its revenue growth stands out as evidence that the company is on top of its spending. Its cash burn versus market cap wasn’t that good, but it was still pretty encouraging! Shareholders can take heart from the fact that analysts predict it will reach profitability. After looking at a number of factors in this article, we are quite relaxed about the cash burn as the company appears to be well positioned to continue funding its growth. While we always like to watch cash burn for early-stage companies, qualitative factors like CEO pay can also shed light on the situation. Click here to view Free of charge what does the CEO of Coast Entertainment Holdings get paid..

If you’d rather check out another company with better fundamentals, then don’t miss this one Free of charge a list of interesting companies that have a HIGH return on equity and low debt or this list of stocks that are projected to grow.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts, using only an 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. We aim to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.

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