We Think Starward Industries Spólka Akcyjna (WSE:STA) Can Afford To Drive Business Growth

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, Starward Industries Spólka Akcyjna (WSE:STA) shareholders have done very well over the last year, with the share price soaring by 141%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Starward Industries Spólka Akcyjna's cash burn is too risky. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Starward Industries Spólka Akcyjna

When Might Starward Industries Spólka Akcyjna Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Starward Industries Spólka Akcyjna last reported its balance sheet in March 2023, it had zero debt and cash worth zł3.5m. Importantly, its cash burn was zł3.7m over the trailing twelve months. That means it had a cash runway of around 11 months as of March 2023. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Starward Industries Spólka Akcyjna's Cash Burn Changing Over Time?

Because Starward Industries Spólka Akcyjna isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. As it happens, the company's cash burn reduced by 17% over the last year, which suggests that management may be mindful of the risks of their depleting cash reserves. Admittedly, we're a bit cautious of Starward Industries Spólka Akcyjna due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Hard Would It Be For Starward Industries Spólka Akcyjna To Raise More Cash For Growth?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Starward Industries Spólka Akcyjna to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Starward Industries Spólka Akcyjna has a market capitalisation of zł254m and burnt through zł3.7m last year, which is 1.4% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About Starward Industries Spólka Akcyjna's Cash Burn?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Starward Industries Spólka Akcyjna's cash burn relative to its market cap was relatively promising. 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 Starward Industries Spólka Akcyjna's situation. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Starward Industries Spólka Akcyjna (3 can't be ignored!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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. 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.