We Think Nanoform Finland Oyj (HEL:NANOFH) Can Afford To Drive Business Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Nanoform Finland Oyj (HEL:NANOFH) shareholders should 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.

Check out our latest analysis for Nanoform Finland Oyj

How Long Is Nanoform Finland Oyj's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2023, Nanoform Finland Oyj had €57m in cash, and was debt-free. Importantly, its cash burn was €24m over the trailing twelve months. Therefore, from June 2023 it had 2.3 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. Importantly, if we extrapolate recent cash burn trends, the cash runway would be a lot longer. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Nanoform Finland Oyj Growing?

Nanoform Finland Oyj reduced its cash burn by 12% during the last year, which points to some degree of discipline. On top of that, operating revenue was up 21%, making for a heartening combination On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Nanoform Finland Oyj Raise More Cash Easily?

While Nanoform Finland Oyj 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. 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.

Nanoform Finland Oyj has a market capitalisation of €141m and burnt through €24m last year, which is 17% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is Nanoform Finland Oyj's Cash Burn Situation?

The good news is that in our view Nanoform Finland Oyj's cash burn situation gives shareholders real reason for optimism. One the one hand we have its solid revenue growth, while on the other it can also boast very strong cash runway. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Nanoform Finland Oyj (1 is a bit concerning!) that you should be aware of before investing here.

Of course Nanoform Finland Oyj may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.