We're Not Worried About EmbeddedArt Group's (NGM:EMART) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. By way of example, EmbeddedArt Group (NGM:EMART) has seen its share price rise 341% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given its strong share price performance, we think it's worthwhile for EmbeddedArt Group shareholders to consider whether its cash burn is concerning. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for EmbeddedArt Group

When Might EmbeddedArt Group 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 2024, EmbeddedArt Group had kr6.8m in cash, and was debt-free. In the last year, its cash burn was kr3.0m. Therefore, from December 2024 it had 2.3 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

How Is EmbeddedArt Group's Cash Burn Changing Over Time?

In our view, EmbeddedArt Group doesn't yet produce significant amounts of operating revenue, since it reported just kr50m in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Notably, its cash burn was actually down by 78% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how EmbeddedArt Group is building its business over time.

Can EmbeddedArt Group Raise More Cash Easily?

There's no doubt EmbeddedArt Group's rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. 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.

EmbeddedArt Group's cash burn of kr3.0m is about 0.5% of its kr578m market capitalisation. 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 EmbeddedArt Group's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way EmbeddedArt Group is burning through its cash. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. But it's fair to say that its cash runway was also very reassuring. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Taking a deeper dive, we've spotted 6 warning signs for EmbeddedArt Group you should be aware of, and 4 of them make us uncomfortable.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, 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.