Companies Like Crunchfish (STO:CFISH) 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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Crunchfish (STO:CFISH) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Crunchfish

SWOT Analysis for Crunchfish

When Might Crunchfish Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2022, Crunchfish had kr29m in cash, and was debt-free. Looking at the last year, the company burnt through kr30m. That means it had a cash runway of around 12 months as of December 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

How Well Is Crunchfish Growing?

On balance, we think it's mildly positive that Crunchfish trimmed its cash burn by 9.7% over the last twelve months. Revenue also improved during the period, increasing by 7.9%. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Crunchfish has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Crunchfish Raise Cash?

Even though it seems like Crunchfish is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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.

Since it has a market capitalisation of kr745m, Crunchfish's kr30m in cash burn equates to about 4.1% of its 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 Crunchfish's Cash Burn?

On this analysis of Crunchfish's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. 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 Crunchfish's situation. Taking a deeper dive, we've spotted 6 warning signs for Crunchfish you should be aware of, and 3 of them are potentially serious.

Of course Crunchfish 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.