Companies like C3.ai (NYSE: AI) are in a position to invest in growth

There is no doubt that money can be made by owning shares in unprofitable companies. For example, even though software-as-a-service salesforce.com has been losing money for years while increasing recurring revenue, if you’ve held stock since 2005, you’ll already be doing well. But the harsh reality is that many companies that incur losses burn all their money and go bankrupt.

So, the natural question for C3.ai (New York Stock Exchange: AI) shareholders is whether they should care about the rate of burnout. In this article, we define cash burn as annual (negative) free cash flow, which is the amount a company spends each year to finance its growth. Let’s start by examining the company’s cash for its cash burn.

check the Opportunities and risks in the American software industry.

Does C3.ai Have a Long Cash Track?

The cash runway is defined as the length of time it would take a company to run out of money if it continued spending at the current rate of burning cash. When C3.ai last reported its balance sheet in July 2022, it had no debt and cash of $907 million. Most importantly, her cash burn amounted to $146 million over the subsequent twelve months. Therefore, as of July 2022, it had 6.2 years of cash gradient. While this is only one measure of cash-burning status, it certainly gives us the impression that its holders have nothing to worry about. Importantly, if we extrapolate the recent cash-burning trends, the cash runway will be significantly longer. You can see how her cash balance has changed over time in the image below.

Analyze the history of debt and equity
NYSE: AI Debt to Equity History October 16, 2022

How well is C3.ai growing?

Notably, C3.ai has already increased its liquidity burn significantly and rapidly in the past year, by 162%, which indicates a huge investment in the business. On the bright side, operating income is up at least 36% over the same period, which gives some hope. In light of the above data, we are somewhat optimistic about the business’ growth trajectory. Obviously, the deciding factor is whether the company will grow its business in the future. So you might want to peek at How much is the company expected to grow in the next few years.

How can C3.ai easily collect cash?

While C3.ai appears to be in a fairly good position, it’s still worth considering how easy it can be to raise more money, even just to support faster growth. Generally, a listed company can raise new cash by issuing shares or borrowing. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn relative to its market value, we gain insight into how much shareholder relief should be if the company needs to raise enough cash to cover another year’s cash burn.

C3.ai has a market capitalization of $1.3 billion and made $146 million last year, which is 11% of the company’s market capitalization. As a result, we will venture that the company can raise more money to grow without too much hassle, albeit at the cost of some dilution.

Is C3.ai Cash a Concern?

In this analysis of C3.ai’s cash burn, we believe its cash rung has been reassuring, while the increased cash burn worries us a bit. Given all of the factors discussed in this article, we’re not overly concerned about the company’s cash-burning, although we think shareholders should watch how it evolves. In-depth examination detection of risks 2 Warning Signs for C3.ai What readers should think about before allocating capital for this stock.

If you’d rather check out another company with better basics, don’t miss it Free List of interesting companies with high return on equity and low debt or This is a list of stocks that are all set to grow.

This article by Simply Wall St is general in nature. We provide comments based only on historical data and analyst expectations using an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock, nor does it take into account your objectives or financial situation. We aim to provide you with focused, long-term analysis driven by essential data. Note that our analysis may not include the company’s most recent price-sensitive ads or quality materials. Wall Street simply has no position in any of the stocks mentioned.

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