Companies Like Beyond Frames Entertainment (FRA:8WP) Can Afford To Invest In Growth

editorial-team@simplywallst.com (Simply Wall St)

Thu, May 23, 2024, 7:48 AM 4 min read

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Beyond Frames Entertainment (FRA:8WP) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Beyond Frames Entertainment

How Long Is Beyond Frames Entertainment's Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Beyond Frames Entertainment last reported its December 2023 balance sheet in February 2024, it had zero debt and cash worth kr22m. Importantly, its cash burn was kr25m over the trailing twelve months. Therefore, from December 2023 it had roughly 10 months of cash runway. Importantly, analysts think that Beyond Frames Entertainment will reach cashflow breakeven in around 11 months. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis — DB:8WP Debt to Equity History May 23rd 2024

How Well Is Beyond Frames Entertainment Growing?

It was fairly positive to see that Beyond Frames Entertainment reduced its cash burn by 35% during the last year. But the operating revenue growth of 238% was even better. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Beyond Frames Entertainment Raise Cash?

While Beyond Frames Entertainment seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of kr372m, Beyond Frames Entertainment's kr25m in cash burn equates to about 6.7% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Beyond Frames Entertainment's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Beyond Frames Entertainment is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Although its cash runway does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. An in-depth examination of risks revealed 3 warning signs for Beyond Frames Entertainment that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.