We are not concerned about Gaming Realms’ cash consumption (LON: GMR)
There is no doubt that money can be made by owning shares of unprofitable companies. For example, Game realms (LON: GMR), shareholders have performed very well over the past year, with the share price climbing 378%. But while successes are well known, investors should not ignore the myriad of unprofitable companies that simply burn all their money and collapse.
In light of the sharp rise in its stock price, we believe now is the time to take a look at how risky Gaming Realms money consumption is. For the purposes of this article, cash consumption is the annual rate at which an unprofitable business spends cash to finance its growth; its negative free cash flow. The first step is to compare its cash consumption with its cash reserves, to give us its “cash flow track”.
When Could Gaming Realms Run Out of Money?
A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. When Gaming Realms last published its balance sheet in December 2020, it had no debt and cash worth £ 2.1million in the UK. Last year his cash consumption amounted to UK £ 455,000. This means he had a cash trail of around 4.6 years as of December 2020. There is no doubt that this is a fairly long and reassuring trail. The image below shows how her cash balance has evolved over the past few years.
How well are the realms of the game developing?
Gaming Realms has managed to reduce its money usage by 89% over the past twelve months, which is hugely promising given its cash needs. This reduction was undoubtedly supported by the strong growth of its turnover of 66% over the same period. Overall, we would say its growth is pretty impressive. If the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How hard would the Gaming Realms be to raise more cash for growth?
We’re certainly impressed with the progress Gaming Realms has made over the past year, but it’s also worth considering how expensive it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise cash and finance growth. By looking at a company’s cash consumption relative to its market capitalization, we gain insight into shareholder dilution if the company needed to raise enough cash to cover another year’s cash consumption.
Gaming Realms’ cash consumption of £ 455,000 in the UK represents approximately 0.4% of its UK market cap of £ 121 million. This means that he could easily issue a few stocks to fund more growth and may well be able to borrow cheaply.
Is Gaming Realms money a concern?
As you can probably see by now, we’re not too concerned with Gaming Realms money consumption. For example, we believe that the reduction in cash consumption suggests that the business is on the right track. But it’s fair to say that its consumption of cash relative to its market cap was also very reassuring. Looking at all of the metrics in this article, together, we don’t worry about its rate of cash consumption, which appears to be under control. Separately, we examined different risks affecting the business and identified 2 warning signs for the game kingdoms (1 of which makes us a little uncomfortable!) you should know.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.