Beyond Frames Entertainment (FRA:8WP) Is In A Good Position To Deliver On Growth Plans

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

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 purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Beyond Frames Entertainment

When Might Beyond Frames Entertainment Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2022, Beyond Frames Entertainment had kr38m in cash, and was debt-free. Importantly, its cash burn was kr25m over the trailing twelve months. Therefore, from March 2022 it had roughly 18 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Beyond Frames Entertainment Growing?

One thing for shareholders to keep front in mind is that Beyond Frames Entertainment increased its cash burn by 1,304% in the last twelve months. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 94%. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how Beyond Frames Entertainment is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For Beyond Frames Entertainment To Raise More Cash For Growth?

Beyond Frames Entertainment seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and 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.

Beyond Frames Entertainment has a market capitalisation of kr428m and burnt through kr25m last year, which is 5.8% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

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

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Beyond Frames Entertainment's revenue growth was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Beyond Frames Entertainment's situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 4 warning signs for Beyond Frames Entertainment that potential shareholders should take into account before putting money into a stock.

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.