We're Hopeful That Westwing Comércio Varejista (BVMF:WEST3) Will Use Its Cash Wisely

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Westwing Comércio Varejista (BVMF:WEST3) 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Westwing Comércio Varejista

How Long Is Westwing Comércio Varejista's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Westwing Comércio Varejista last reported its balance sheet in June 2023, it had zero debt and cash worth R$150m. Looking at the last year, the company burnt through R$6.0m. That means it had a cash runway of very many years as of June 2023. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

How Well Is Westwing Comércio Varejista Growing?

Westwing Comércio Varejista managed to reduce its cash burn by 97% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. But it was a bit disconcerting to see operating revenue down 26% in that time. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Westwing Comércio Varejista Raise Cash?

While Westwing Comércio Varejista seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Westwing Comércio Varejista has a market capitalisation of R$228m and burnt through R$6.0m last year, which is 2.6% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Westwing Comércio Varejista's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Westwing Comércio Varejista's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking a deeper dive, we've spotted 3 warning signs for Westwing Comércio Varejista you should be aware of, and 1 of them is a bit unpleasant.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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.