Both BrainChip Holdings Ltd (ASX: BRN) and Weebit Nano Ltd (ASX: WBT) posted earnings results to the market recently.
Both shares remained unprofitable for the respective periods, Weebit for FY22 full and Brainchip for the 6 months to 30 June 2022. Here, we look at year-over-year results for both names.
Whereas Brainchip shares finished the week at 90 cents apiece, Weebit closed at $2.58, and this was both flat and down 2% on the day respectively.
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Cash flow analysis for Brainchip shares
In order to gauge which company churned through the most cash last period(s), we have to first reconcile a number of non-cash items from the income statement.
Thankfully, the cash flow statement does most of the heavy lifting here for us. We'll still need to make some adjustments, however, this is the best starting point.
For the half-year ended 30 June 2022, Brainchip recorded a negative net cash flow from operations of US$7.9 million, behind last year's US$6.9 million.
The shift stemmed from a US$1 million increase in payments to suppliers over the 12 months.
It also spent an additional US$80,500 on purchases of property, plant and equipment, and saw numerous other outflows from its financing activities.
However, the company raised US$17.2 million from the issue of additional equity, meaning it saw a net US$9 million increase and cash and equivalents.
That's a 65% year-on-year change for the technology company. However, removing this from the equation, the company organically saw an US$11 million or 36.5% year-on-year decline in its cash position.
Hence the reason it needed to raise additional cash in the first place.
What about Weebit?
Meanwhile, over in Weebit's camp, after raising $35 million earlier in the year, its cash position jumped 145% or $31 million year on year.
Although, we need to understand what all this means for both companies, and bring the figures into some common size.
First – how much each company burned through in the period. We do that by taking the cash on the balance sheet and dividing it by the monthly operating losses. For Weebit, it chewed through around $2.6 million per month whereas Brainchip churned through roughly US$2.1 million per month.
At the current exchange rate, that's A$3.1 million, however, exchange rates move in cycles just like other markets – so that's just the exchange rate for today.
Nevertheless, we can make strong inferences from this data about how much time or 'runway' a company has left on its current cash balance by factoring in its burn rate.
Thankfully, companies must file an 'Appendix 4C' alongside their statement of cash flows, and this form does the heavy lifting for us once more. Ah, regulation, finally working in our favour.
Specifically, Section (8). covers the estimated cash available for future operating activities.
For Weebit, an estimated 16 quarters of funding are available at its current cash balance and burn rate. Whereas Brainchip has an estimated 5.75 quarters.
Final takeaway
This kind of analysis is important for investors to consider when making investment decisions. Unprofitable companies will still spend cash through inventory costs and operating expenses, not to mention interest on debt and operating leases.
It is only so long before a company will burn through its cash balance before it will need to raise additional equity.
It is then when current shareholders may be affected, through dilution of the share count, or, new shareholders being offered a discount to the current share price – as is often the case.
Finally, Brainchip shares are up 80% over the past 12 months. Meanwhile, Weebit has wandered 28% to the downside over the same period of time.
