Companies Like Devyser Diagnostics (STO:DVYSR) Are In A Position To Invest In Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Devyser Diagnostics (STO:DVYSR) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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How Long Is Devyser Diagnostics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. Devyser Diagnostics has such a small amount of debt that we'll set it aside, and focus on the kr145m in cash it held at December 2024. Importantly, its cash burn was kr124m over the trailing twelve months. That means it had a cash runway of around 14 months as of December 2024. Notably, analysts forecast that Devyser Diagnostics will break even (at a free cash flow level) in about 2 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.

See our latest analysis for Devyser Diagnostics

How Well Is Devyser Diagnostics Growing?

At first glance it's a bit worrying to see that Devyser Diagnostics actually boosted its cash burn by 22%, year on year. The good news is that operating revenue increased by 28% in the last year, indicating that the business is gaining some traction. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years .

How Hard Would It Be For Devyser Diagnostics To Raise More Cash For Growth?

Even though it seems like Devyser Diagnostics 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. 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).

Devyser Diagnostics has a market capitalisation of kr1.5b and burnt through kr124m last year, which is 8.2% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Devyser Diagnostics' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Devyser Diagnostics is burning through its cash. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Notably, our data indicates that Devyser Diagnostics insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link .

Of course Devyser Diagnostics 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 with high insider ownership.

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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.