There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for myFC Holding (STO:MYFC) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business's cash, relative to its cash burn.
View our latest analysis for myFC Holding
When Might myFC Holding Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2019, myFC Holding had kr9.8m in cash, and was debt-free. Importantly, its cash burn was kr70m over the trailing twelve months. So it had a cash runway of approximately 2 months from December 2019. It's extremely surprising to us that the company has allowed its cash runway to get that short! Depicted below, you can see how its cash holdings have changed over time.
How Is myFC Holding's Cash Burn Changing Over Time?
In our view, myFC Holding doesn't yet produce significant amounts of operating revenue, since it reported just kr2.7m in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. As it happens, the company's cash burn reduced by 39% over the last year, which suggests that management are mindful of the possibility of running out of cash. Admittedly, we're a bit cautious of myFC Holding due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.
Can myFC Holding Raise More Cash Easily?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for myFC Holding to raise more cash in the future. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash to fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.