We're Interested To See How MYT Netherlands Parent B.V (NYSE:MYTE) Uses Its Cash Hoard To Grow

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should MYT Netherlands Parent B.V (NYSE:MYTE) shareholders 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for MYT Netherlands Parent B.V

When Might MYT Netherlands Parent B.V Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2021, MYT Netherlands Parent B.V had €56m in cash, and was debt-free. Importantly, its cash burn was €4.7m over the trailing twelve months. So it had a very long cash runway of many years from September 2021. Importantly, though, analysts think that MYT Netherlands Parent B.V will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is MYT Netherlands Parent B.V Growing?

We reckon the fact that MYT Netherlands Parent B.V managed to shrink its cash burn by 29% over the last year is rather encouraging. And considering that its operating revenue gained 35% during that period, that's great to see. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can MYT Netherlands Parent B.V Raise Cash?

We are certainly impressed with the progress MYT Netherlands Parent B.V has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster 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 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).

MYT Netherlands Parent B.V has a market capitalisation of €2.3b and burnt through €4.7m last year, which is 0.2% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is MYT Netherlands Parent B.V's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way MYT Netherlands Parent B.V is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. We think it's very important to consider the cash burn for loss making companies, but other considerations such as the amount the CEO is paid can also enhance your understanding of the business. You can click here to see what MYT Netherlands Parent B.V's CEO gets paid each year.

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)

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.

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