Here's Why We're Not Too Worried About 63 moons technologies' (NSE:FINANTECH) Cash Burn Situation

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should 63 moons technologies (NSE:FINANTECH) shareholders 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for 63 moons technologies

When Might 63 moons technologies Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. 63 moons technologies has such a small amount of debt that we'll set it aside, and focus on the ₹16b in cash it held at March 2021. Importantly, its cash burn was ₹392m over the trailing twelve months. So it had a very long cash runway of many years from March 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is 63 moons technologies Growing?

63 moons technologies managed to reduce its cash burn by 66% over the last twelve months, which suggests it's on the right flight path. But it was a bit disconcerting to see operating revenue down 25% in that time. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how 63 moons technologies has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For 63 moons technologies To Raise More Cash For Growth?

While 63 moons technologies seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of ₹4.4b, 63 moons technologies' ₹392m in cash burn equates to about 8.8% 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.

So, Should We Worry About 63 moons technologies' Cash Burn?

As you can probably tell by now, we're not too worried about 63 moons technologies' cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, 63 moons technologies has 3 warning signs (and 1 which is significant) we think you should know about.

Of course 63 moons technologies 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. 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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