We can easily understand why investors are attracted to losing companies. For example, while Amazon.com has suffered post-listing losses for years, if you had bought and held stock since 1999, you would have made a fortune. But while the successes are well known, investors shouldn’t ignore the many money-losing companies that simply burn through all their money and go bust.
So it should Tourist enterprises (TADAWUL:4170) Are shareholders worried about their cash flow? For the purposes of this article, we will define cash flow as the amount of cash a company spends each year to finance its growth (also called negative free cash flow). We’ll start by comparing cash flow with her cash reserves to calculate a cash runway.
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Do tourism businesses have a long cash register?
A company’s runway is calculated by dividing the cash reserve by the cash flow. As of March 2022, Tourist Enterprises had £7.7m in cash and no debt. Last year he lost £8.6m in cash. Thus, since March 2022, she had a cash reserve of approximately 11 months. This is a fairly short cash reserve, indicating that the company must either reduce its annual cash flow or replenish its cash. In the image below, you can see how his cash holdings have changed over time.
Are tourism businesses on the rise?
We are hesitant to extrapolate the recent trend for cash burn estimates because Tourist Enterprises actually had positive free cash flow last year, so operating revenue growth is probably our best metric to measure right now. Unfortunately, the company’s operating revenue has moved in the wrong direction over the past twelve months, down 14%. Of course, here we have only skimmed over the growth performance of stocks. This revenue and historical earnings chart shows how Tourism Enterprises has built its business over time.
Can tourism businesses easily raise more money?
With revenue growth heading in the wrong direction, Tourism Enterprises shareholders can think ahead about when the company might need more money. Companies can raise capital through debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company’s cash flow to its market capitalization to get an idea of how many new shares a company will have to issue to finance its annual operations.
The £8.6m travel business cash loss represents around 0.8% of its £1.0bn market capitalization. This means that he can easily issue a few shares to finance further growth and may well get cheap loans.
Is Burning Cash Worried by Travel Businesses?
While its declining revenue makes us a little nervous, we have to point out that we thought Tourism Enterprises’ cash flow relative to its market capitalization was relatively promising. Although we are one of those investors who…