Even when a company is losing money, shareholders can make money by buying a good company at the right price. For example, Amazon.com lost money for many years after it went public, but if you bought and held its shares from 1999 onwards, you would have made a lot of money. But history often celebrates those rare successes while forgetting the failures. Does anyone remember Pets.com?
That's what you should do C3.ai Are (NYSE:AI) shareholders worried about the company's cash burn? For the purposes of this article, we define cash burn as annual (negative) free cash flow, which is the amount a company spends each year to fund growth. Let's start by examining the company's cash compared to its cash burn.
See our latest analysis for C3.ai
How long is C3.ai's cash runway?
A company's cash runway is how long it would take to burn through its cash reserves at its current cash burn rate. When C3.ai last reported its April 2024 balance sheet in June 2024, it had zero debt and $750 million in cash. Looking back at last year, the company burned through $90 million. So, it has a cash runway of 8.3 years from April 2024. However, analysts believe C3.ai will reach breakeven (free cash flow levels) before then. If that's the case, it may never reach the end of its cash runway. Below, you can see how its cash holdings have changed over time:
How much has C3.ai grown?
We think it's rather encouraging that C3.ai managed to reduce its cash burn by 52% last year. Operating revenue also grew by 16%. Looking back, we think the company has grown pretty well. While it's always worth studying the past, it's the future that matters most. That's why it makes a lot of sense to take a look at our analyst forecasts for the company.
How difficult will it be for C3.ai to raise more capital to grow?
While C3.ai appears to be in a fairly good position when it comes to managing its cash burn, it's always worth asking how easily it could raise capital to fund growth, even if it's just hypothetical. Companies can raise capital with either debt or equity. Many companies will end up issuing new shares to fund future growth. Looking at a company's cash burn compared to its market capitalization can give us an idea of ​​how much dilution shareholders would face if the company needed to raise enough cash to cover the next year's cash burn.
C3.ai's market cap is $3.7 billion, so the company's $90 million cash burn represents about 2.4% of its market cap, meaning the company could easily issue a few shares of stock to fund further growth and be in a position to borrow cheaply.
How risky is C3.ai's cash burn situation?
As you can probably tell, we're not too worried about C3.ai's cash burn. For example, we think the company's cash runway shows it's on a good track. And while revenue growth wasn't as spectacular, it was still positive. What's really positive is that analysts expect the company to break even. Considering all the factors in this report, the company appears to have plenty of capital to spend if needed, so we're not worried about the cash burn at all. After examining the risks in more detail, we found the following: 2 warning signs for C3.ai Things you should know before investing.
If you want to check out another company with a better foundation, don't miss this one free A list of interesting companies with high return on equity and low debt, or a list of stocks that are expected to grow.
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