There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether Blackbird (LON:BIRD) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Blackbird

When Might Blackbird Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2020, Blackbird had UK£7.2m in cash, and was debt-free. Looking at the last year, the company burnt through UK£1.9m. Therefore, from June 2020 it had 3.8 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. You can see how its cash balance has changed over time in the image below. debt-equity-history-analysis

How Well Is Blackbird Growing?

We reckon the fact that Blackbird managed to shrink its cash burn by 21% over the last year is rather encouraging. And considering that its operating revenue gained 35% during that period, that's great to see. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Blackbird is building its business over time.

How Easily Can Blackbird Raise Cash?

There's no doubt Blackbird seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.



Blackbird has a market capitalisation of UK£66m and burnt through UK£1.9m last year, which is 2.9% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Blackbird's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Blackbird's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its weak point is its cash burn reduction, but even that wasn't too bad! Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Blackbird that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this freelist of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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