RISMA Systems (CPH:RISMA) Is In A Good Position To Deliver On Growth Plans

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should RISMA Systems (CPH:RISMA) 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for RISMA Systems

How Long Is RISMA Systems' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at June 2024, RISMA Systems had cash of kr.10m and no debt. Importantly, its cash burn was kr.6.5m over the trailing twelve months. So it had a cash runway of approximately 19 months from June 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.

How Well Is RISMA Systems Growing?

It was fairly positive to see that RISMA Systems reduced its cash burn by 55% during the last year. On top of that, operating revenue was up 31%, making for a heartening combination It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how RISMA Systems is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For RISMA Systems To Raise More Cash For Growth?

RISMA Systems 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. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

RISMA Systems has a market capitalisation of kr.189m and burnt through kr.6.5m last year, which is 3.4% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is RISMA Systems' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about RISMA Systems' cash burn. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. Its cash runway wasn't quite as good, but was still rather encouraging! Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 5 warning signs for RISMA Systems (of which 3 are concerning!) 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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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.