Will GetSwift Technologies (FRA:8DQ) Spend Its Cash Wisely?

We can readily understand why investors are attracted to unprofitable companies. 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 should GetSwift Technologies (FRA:8DQ) shareholders 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'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for GetSwift Technologies

Does GetSwift Technologies Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. GetSwift Technologies has such a small amount of debt that we'll set it aside, and focus on the US$12m in cash it held at March 2021. Looking at the last year, the company burnt through US$18m. That means it had a cash runway of around 8 months as of March 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.

How Well Is GetSwift Technologies Growing?

At first glance it's a bit worrying to see that GetSwift Technologies actually boosted its cash burn by 18%, year on year. On a more positive note, the operating revenue improved by 195% over the period, offering an indication that the expenditure may well be worthwhile. If that revenue does keep flowing reliably, then the company could see a strong improvement in free cash flow simply by reducing growth expenditure. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how GetSwift Technologies is building its business over time.

Can GetSwift Technologies Raise More Cash Easily?

While GetSwift Technologies seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Since it has a market capitalisation of US$41m, GetSwift Technologies' US$18m in cash burn equates to about 45% of its market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

How Risky Is GetSwift Technologies' Cash Burn Situation?

On this analysis of GetSwift Technologies' cash burn, we think its revenue growth was reassuring, while its cash runway has us a bit worried. Summing up, we think the GetSwift Technologies' cash burn is a risk, based on the factors we mentioned in this article. On another note, GetSwift Technologies has 4 warning signs (and 2 which are significant) we think you should know about.

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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