We Think Starward Industries Spólka Akcyjna (WSE:STA) Needs To Drive Business Growth Carefully

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Starward Industries Spólka Akcyjna (WSE:STA) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Starward Industries Spólka Akcyjna

Does Starward Industries Spólka Akcyjna Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Starward Industries Spólka Akcyjna last reported its balance sheet in June 2022, it had zero debt and cash worth zł1.6m. Importantly, its cash burn was zł3.2m over the trailing twelve months. So it had a cash runway of approximately 6 months from June 2022. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. 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. With the cash burn rate up 2.7% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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 Easily Can Starward Industries Spólka Akcyjna Raise Cash?

While its cash burn is only increasing slightly, Starward Industries Spólka Akcyjna shareholders should still consider the potential need for further cash, down the track. 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. 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).

Starward Industries Spólka Akcyjna has a market capitalisation of zł115m and burnt through zł3.2m last year, which is 2.7% 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. Summing up, we think the Starward Industries Spólka Akcyjna's cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Starward Industries Spólka Akcyjna (4 make us uncomfortable!) that you should be aware of before investing here.

Of course Starward Industries Spólka Akcyjna 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. 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.