Companies Like Quadrise Fuels International (LON:QFI) Can Afford To Invest In Growth

Just because a business does not make any money, does not mean that the stock will go down. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Quadrise Fuels International (LON:QFI) shareholders should be worried about its 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Quadrise Fuels International

How Long Is Quadrise Fuels International's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Quadrise Fuels International last reported its balance sheet in June 2021, it had zero debt and cash worth UK£7.0m. Importantly, its cash burn was UK£2.4m over the trailing twelve months. That means it had a cash runway of about 2.9 years as of June 2021. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Is Quadrise Fuels International's Cash Burn Changing Over Time?

In the last year, Quadrise Fuels International did book revenue of UK£17k, but its revenue from operations was less, at just UK£17k. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. With cash burn dropping by 20% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. Quadrise Fuels International makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Quadrise Fuels International Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Quadrise Fuels International to raise more cash in the future. Companies can raise capital through either debt or equity. 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 UK£57m, Quadrise Fuels International's UK£2.4m in cash burn equates to about 4.3% of its 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 Quadrise Fuels International's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Quadrise Fuels International's cash burn. For example, we think its cash runway suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, Quadrise Fuels International has 5 warning signs (and 2 which shouldn'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)

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.

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