Is Jayride Group (ASX:JAY) In A Good Position To Invest In Growth?

We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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.

So, the natural question for Jayride Group (ASX:JAY) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.

See our latest analysis for Jayride Group

Does Jayride Group Have A Long Cash Runway?

You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2021, Jayride Group had cash of AU$5.7m and no debt. Importantly, its cash burn was AU$5.1m over the trailing twelve months. So it had a cash runway of approximately 13 months from December 2021. While that cash runway isn’t too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis

How Is Jayride Group’s Cash Burn Changing Over Time?

Whilst it’s great to see that Jayride Group has already begun generating revenue from operations, last year it only produced AU$1.4m, so we don’t think it is generating significant revenue, at this point. As a result, we think it’s a bit early to focus on the revenue growth, so we’ll limit ourselves to looking at how the cash burn is changing over time. Cash burn was pretty flat over the last year, which suggests that management are holding spending steady while the business advances its strategy. Admittedly,…

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