Here's Why We're Not At All Concerned With OneSoft Solutions' (CVE:OSS) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should OneSoft Solutions (CVE:OSS) shareholders be worried about its 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 OneSoft Solutions

How Long Is OneSoft Solutions' 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. In September 2023, OneSoft Solutions had CA$4.3m in cash, and was debt-free. Looking at the last year, the company burnt through CA$616k. That means it had a cash runway of about 7.0 years as of September 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. The image below shows how its cash balance has been changing over the last few years.

How Well Is OneSoft Solutions Growing?

OneSoft Solutions managed to reduce its cash burn by 70% over the last twelve months, which suggests it's on the right flight path. This reduction was no doubt supported by its strong revenue growth of 64% in the same period. Considering these factors, we're fairly impressed by its growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how OneSoft Solutions is growing revenue over time by checking this visualization of past revenue growth.

Can OneSoft Solutions Raise More Cash Easily?

There's no doubt OneSoft Solutions seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.

Since it has a market capitalisation of CA$95m, OneSoft Solutions' CA$616k in cash burn equates to about 0.6% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is OneSoft Solutions' Cash Burn Situation?

As you can probably tell by now, we're not too worried about OneSoft Solutions' cash burn. For example, we think its revenue growth suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. 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 an in-depth view of risks, we've identified 2 warning signs for OneSoft Solutions that you should be aware of before investing.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.