We believe Matrix Composites & Engineering (ASX:MCE) can help drive business growth

Just because a company isn’t making money doesn’t mean the stock will go down. For example, although Amazon.com posted losses for many years after it listed, if you had bought and held the stock since 1999, you would have made a fortune. However, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.

So should Matrix composites and engineering (ASX: MCE) are shareholders worried about its consumption of cash? For the purposes of this article, we will define cash burn as the amount of money the business spends each year to finance its growth (also known as negative free cash flow). Let’s start with a review of the company’s cash flow, relative to its cash burn.

See our latest analysis for Matrix Composites & Engineering

Does Matrix Composites & Engineering have a long cash trail?

You can calculate a company’s cash trail by dividing the amount of cash it has on hand by the rate at which it spends that money. As of June 2022, Matrix Composites & Engineering had A$7.6 million in cash and no debt. Last year, its cash burn was A$5.7 million. So there was a cash trail of about 16 months from June 2022. While that cash trail isn’t too much of a concern, sane holders would look away and consider what would happen if the business ran out of cash. . The image below shows how his cash balance has changed over the past few years.


How is Matrix Composites & Engineering growing?

Matrix Composites & Engineering has reduced its cash burn by 20% over the past year, indicating a degree of discipline. That said, the 62% revenue growth was considerably more inspiring. It seems to be growing well. Of course, we’ve only taken a look at the stock’s growth metrics here. You can see how Matrix Composites & Engineering is growing its revenue over time by checking out this visualization of past revenue growth.

How difficult would it be for Matrix Composites & Engineering to raise more cash for growth?

Matrix Composites & Engineering appears to be in a pretty good position in terms of cash burn, but we still think it’s worth considering how easily it could raise more cash if it wanted to. In general, a listed company can raise new funds by issuing shares or by going into debt. Many companies end up issuing new shares to fund their future growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for another year (at the same burn rate).

Matrix Composites & Engineering has a market capitalization of A$34m and burned A$5.7m last year, or 17% of the company’s market value. Given this situation, it’s fair to say that the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Matrix Composites & Engineering’s cash burn a concern?

The good news is that in our view Matrix Composites & Engineering’s cash burn situation gives shareholders real reason to be optimistic. On the one hand, we have its solid reduction in cash burn, while on the other hand, it can also boast of very strong revenue growth. While we’re the kind of investors who are always a little concerned about the risks of money-burning companies, the metrics we’ve discussed in this article leave us relatively comfortable about Matrix’s situation. Composites & Engineering. On a different note, we conducted a thorough investigation of the company and identified 4 warning signs for Matrix Composites & Engineering (2 are significant!) which you should be aware of before investing here.

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

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Join a Paid User Research Session
You will receive a $30 Amazon Gift Card for 1 hour of your time while helping us create better investment tools for individual investors like you. register here

About Florence L. Silvia

Check Also

NICE Named Technology Leader in SPARK Matrix 2022 for VoC

NICE was named a technology leader in the 2022 SPARK Matrix for Voice of the …