We're Keeping An Eye On C'BON COSMETICSLtd's (TSE:4926) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should C'BON COSMETICSLtd (TSE:4926) 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'.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

How Long Is C'BON COSMETICSLtd'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. In December 2024, C'BON COSMETICSLtd had JP¥2.7b in cash, and was debt-free. In the last year, its cash burn was JP¥1.1b. Therefore, from December 2024 it had 2.5 years of cash runway. That's decent, giving the company a couple years to develop its business. Importantly, if we extrapolate recent cash burn trends, the cash runway would be noticeably longer. The image below shows how its cash balance has been changing over the last few years.

See our latest analysis for C'BON COSMETICSLtd

How Well Is C'BON COSMETICSLtd Growing?

It was quite stunning to see that C'BON COSMETICSLtd increased its cash burn by 207% over the last year. On top of that, the fact that operating revenue was basically flat over the same period compounds the concern. Considering these two factors together makes us nervous about the direction the company seems to be heading. In reality, this article only makes a short study of the company's growth data. You can take a look at how C'BON COSMETICSLtd has developed its business over time by checking this visualization of its revenue and earnings history .

How Hard Would It Be For C'BON COSMETICSLtd To Raise More Cash For Growth?

Even though it seems like C'BON COSMETICSLtd is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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.

C'BON COSMETICSLtd's cash burn of JP¥1.1b is about 23% of its JP¥4.6b market capitalisation. 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.

Is C'BON COSMETICSLtd's Cash Burn A Worry?

On this analysis of C'BON COSMETICSLtd's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for C'BON COSMETICSLtd that investors should know when investing in the stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.