Welcome to my first article for Equity.Guru! I’m here to go through the numbers of companies EG is paying attention to and to give my honest opinion on the strict financial outlook of companies based on their real world performance.
Not every firm is profitable, sure, but not every firm is TRYING to be profitable early, when market share and building infrastructure is sometimes more important than sales.
To be clear, I’m a big fan of revenue growth and constant work on improving margins, and have made clear to my bosses that I won’t sugarcoat if I think a company is in trouble.
THE ANALYSIS:
Todays I’m looking over BC Bud Corp (BCBC.C), a cannabis company located in, well, BC (duh) that has headwinds in the shape of a general disaffection of many investors for the cannabis sector, and the fact that it’s early days for the company. BCBC missed a lot of the darkest days for Canadian weed, but has positioned itself nicely with a model that sits between grower and dispensary, allowing the company to avoid over-spending on set up and operational costs.
Let’s dig in with a look at the most recent financials.
- Profitability and Revenue: The most recent qusarterly statements indicate that the company had a net loss of $342,360 for the six months ended August 31, 2023, and an accumulated deficit of $4,351,705. This suggests that the company has yet to achieve profitability.
- Liquidity: The company’s current ratio, which is a measure of liquidity, can be assessed by comparing current assets to current liabilities. As of August 31, 2023, the current assets were $1,756,217 and current liabilities were $638,246, resulting in a current ratio of approximately 2.75. This is a positive indicator, as a ratio above 1 suggests that the company can cover its short-term liabilities with its short-term assets.
- Cash Flow: The cash flow statement shows that the company had negative cash flow from operating activities of $484,667 for the six months ended August 31, 2023. However, financing activities provided positive cash flow, indicating that the company is currently reliant on external financing to fund its operations.
- Capital Structure: The equity section shows that the company has been issuing shares to raise capital, as shown by an increase in share capital from February 28, 2023, to August 31, 2023.
- Asset Management: The balance sheet indicates that the company has a significant amount of advances ($835,102) and inventory ($123,057), which suggests that the company is investing in future growth.
- Notes to Financial Statements: The notes provide additional context, such as the company’s revenue streams, the nature of its operations, and significant accounting policies. For instance, the revenue comes from various cannabis products and the company operates through partnerships with licensed producers.
Considering these points, the company appears to be in a growth phase, investing in inventory and assets, and raising funds through share issuance. The negative net income is a concern for long-term sustainability, but it is not uncommon for early-stage companies in growth industries.
The company’s ability to continue raising capital and manage its cash flow will be critical for its long-term success. The financials do not show a company that is currently profitable, but they do reflect a company that is actively seeking to expand and establish its market position. The long-term likelihood of success will depend on the company’s ability to convert these investments into profitable revenue streams.
Much of this analysis positions BC Bud exactly where you’d expect them to be at this stage of their existence, and while there remains risk, the company appears to be in a reasonably comfortable position going forward.
My rating: B
— Lucy Copperpot
FULL DISCLOSURE: BC Bud Corp is an Equity.Guru marketing client. The author has no financial stake in the company.
