We're Hopeful That Oneflow (STO:ONEF) Will Use Its Cash Wisely

We can readily understand why investors are attracted to unprofitable companies. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Oneflow (STO:ONEF) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Oneflow

Does Oneflow 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. As at March 2023, Oneflow had cash of kr188m and no debt. Looking at the last year, the company burnt through kr80m. Therefore, from March 2023 it had 2.3 years of cash runway. That's decent, giving the company a couple years to develop its business. Importantly, if we extrapolate recent cash burn trends, the cash runway would be noticeably longer. You can see how its cash balance has changed over time in the image below.

How Well Is Oneflow Growing?

Notably, Oneflow actually ramped up its cash burn very hard and fast in the last year, by 158%, signifying heavy investment in the business. On the bright side, at least operating revenue was up 42% over the same period, giving some cause for hope. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 Easily Can Oneflow Raise Cash?

Oneflow seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Oneflow has a market capitalisation of kr996m and burnt through kr80m last year, which is 8.0% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is Oneflow's Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Oneflow's revenue growth was relatively promising. 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. An in-depth examination of risks revealed 3 warning signs for Oneflow that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.