We're Not Very Worried About Promimic's (STO:PRO) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Promimic (STO:PRO) shareholders should be worried about its 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Promimic

Does Promimic Have A Long Cash Runway?

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 Promimic last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth kr32m. Looking at the last year, the company burnt through kr18m. So it had a cash runway of approximately 21 months from June 2024. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Promimic Growing?

Promimic reduced its cash burn by 9.4% during the last year, which points to some degree of discipline. And arguably the operating revenue growth of 50% was even more impressive. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Promimic is building its business over time.

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

Even though it seems like Promimic 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. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Promimic has a market capitalisation of kr688m and burnt through kr18m last year, which is 2.6% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Promimic's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Promimic is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Its weak point is its cash burn reduction, but even that wasn't too bad! After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Promimic that potential shareholders should take into account before putting money into a stock.

Of course Promimic 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.