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Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Hoftex Group (MUN:NBH) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Hoftex Group
Does Hoftex Group Have A Long 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 Hoftex Group last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth €9.9m. Looking at the last year, the company burnt through €3.6m. That means it had a cash runway of about 2.8 years as of June 2024. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
Is Hoftex Group's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Hoftex Group actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 8.9%. In reality, this article only makes a short study of the company's growth data. You can take a look at how Hoftex Group has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Hoftex Group To Raise More Cash For Growth?
Given its problematic fall in revenue, Hoftex Group shareholders should consider how the company could fund its growth, if it turns out it needs more cash. 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).