We're Interested To See How Cinis Fertilizer (STO:CINIS) Uses Its Cash Hoard To Grow

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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Cinis Fertilizer (STO:CINIS) shareholders should 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'.

View our latest analysis for Cinis Fertilizer

When Might Cinis Fertilizer Run Out Of Money?

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. In December 2022, Cinis Fertilizer had kr403m in cash, and was debt-free. In the last year, its cash burn was kr58m. So it had a cash runway of about 6.9 years from December 2022. Notably, however, analysts think that Cinis Fertilizer will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

Can Cinis Fertilizer Raise More Cash Easily?

Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Cinis Fertilizer's cash burn of kr58m is about 1.9% of its kr3.1b market capitalisation. 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.

Is Cinis Fertilizer's Cash Burn A Worry?

Given it's an early stage company, we don't have a lot of data with which to judge Cinis Fertilizer's cash burn. We would undoubtedly be more comfortable if it had reported some operating revenue. Having said that, we can say that its cash runway was a real positive. Summing up, its cash burn doesn't bother us and we're excited to see what kind of growth it can achieve with its current cash hoard. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Cinis Fertilizer (1 is a bit unpleasant!) that you should be aware of before investing here.

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.