We can see why investors seek out businesses that aren’t profitable. 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. However, no fool would overlook the danger that a company with poor financial performance will burn through its money in a way that is too fast.
The genuine concern that is asked by Beyond Frames Entertainment (FRA:8WP) shareholders is whether they should be worried about the cash burn rate. In this article, the term “cash burn” is the annual percentage that a company that is not profitable uses the money to finance its expansion; it’s zero free cash flow. The first step is to establish the company’s cash runway by the ratio of its cash burn and the cash reserve.
When Might Beyond Frames Entertainment Run Out Of Money?
A company’s cash runway can be calculated as a result of dividing the cash pile by the amount of cash burned. As of March 20, 2024, Beyond Frames Entertainment had $ 38 million in cash and was debt-free. The most important thing is its cash burn was around kr25m over twelve months. So, as of March 2024, it would have approximately one year of runway for cash. Although this cash runway isn’t all that important, intelligent investors will be looking out in the distance and pondering what would happen when the business has to run out of cash. You can see how the cash balance has fluctuated over time by looking at the picture below.
How Well Is Beyond Frames Entertainment Growing?
One thing shareholders should remember is that Beyond Frames Entertainment increased its cash burn by 1,304% during the last 12 months. Although that may give us pause, we find great comfort in the strong growth in revenue of 94 percent. Based on the information above, we’re confident about the company’s growth path. The truth is that this article is only a brief review of the company’s overall growth statistics. You can look at how Beyond Frames Entertainment is growing revenue over time by looking at this graph of revenue growth.
How Hard Would It Be For Beyond Frames Entertainment To Raise More Cash For Growth?
Beyond Frames Entertainment seems to be in a pretty good position regarding cash burning. However, we think it’s worth considering how easy it is to raise more funds if needed. The issue of shares and taking loans are among the most popular ways for a publicly-traded company to raise funds for its operations. One significant advantage of publicly traded businesses is that they can offer shares to investors to gain cash and help fund expansion. You can look at the ratio of a company’s cash flow against its market capitalization to determine how many shares the company will need to issue to fund one year’s operation.
Beyond Frames Entertainment has a market capitalization of KR428m. It also burned through kr25m last year, which amounts to 5.8 percent of the market value. As it is a small amount, it would be pretty simple for the business to finance next year’s growth by issuing new shares to its investors or through loans.
So, Should We Worry About Beyond Frames Entertainment’s Cash Burn?
While its ever-growing cash burn can make us feel a bit anxious, we have to say that we believed Beyond Frames Entertainment’s increase in revenue was pretty positive. We’re not the type of investors who are worried about the risk associated when dealing with companies that burn cash; however, the numbers we’ve reviewed in this piece make us feel pretty confident about Beyond Frames Entertainment’s current situation. Investors must be aware of the risks associated with business before deciding to invest in a stock. We’ve found four warning indicators concerning Beyond Frames Entertainment that potential investors should consider before investing money in an investment
