Stock Analysis

We're Not Very Worried About Nanoform Finland Oyj's (HEL:NANOFH) Cash Burn Rate

Source: Shutterstock

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers

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 article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Nanoform Finland Oyj

When Might Nanoform Finland Oyj Run Out Of Money?

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. When Nanoform Finland Oyj last reported its balance sheet in December 2022, it had zero debt and cash worth €69m. Looking at the last year, the company burnt through €29m. That means it had a cash runway of about 2.4 years as of December 2022. Notably, analysts forecast that Nanoform Finland Oyj will break even (at a free cash flow level) in about 3 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.

HLSE:NANOFH Debt to Equity History April 28th 2023

How Well Is Nanoform Finland Oyj Growing?

Some investors might find it troubling that Nanoform Finland Oyj is actually increasing its cash burn, which is up 31% in the last year. Having said that, it's revenue is up a very solid 78% in the last year, so there's plenty of reason to believe in the growth story. Of course, with spend going up shareholders will want to see fast growth continue. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Nanoform Finland Oyj To Raise More Cash For Growth?

We are certainly impressed with the progress Nanoform Finland Oyj has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund 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.

Nanoform Finland Oyj has a market capitalisation of €155m and burnt through €29m last year, which is 19% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About Nanoform Finland Oyj's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Nanoform Finland Oyj's revenue growth was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. On another note, Nanoform Finland Oyj has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

Valuation is complex, but we're helping make it simple.

Find out whether Nanoform Finland Oyj is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis