Stock Analysis

We Think 63 moons technologies (NSE:FINANTECH) Can Afford To Drive Business Growth

NSEI:63MOONS
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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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for 63 moons technologies (NSE:FINANTECH) shareholders is whether they should be concerned by its rate of 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for 63 moons technologies

How Long Is 63 moons technologies' 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 September 2020, 63 moons technologies had cash of ₹16b and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was ₹758m over the trailing twelve months. So it had a very long cash runway of many years from September 2020. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
NSEI:FINANTECH Debt to Equity History March 14th 2021

How Well Is 63 moons technologies Growing?

We reckon the fact that 63 moons technologies managed to shrink its cash burn by 31% over the last year is rather encouraging. Unfortunately, however, operating revenue declined by 33% during the period. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 Easily Can 63 moons technologies Raise Cash?

We are certainly impressed with the progress 63 moons technologies 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. 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. 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).

Since it has a market capitalisation of ₹3.6b, 63 moons technologies' ₹758m in cash burn equates to about 21% of its market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is 63 moons technologies' Cash Burn Situation?

On this analysis of 63 moons technologies' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about 63 moons technologies' situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for 63 moons technologies (of which 1 is concerning!) 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)

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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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