Just because a business does not make any money, does not mean that the stock will go down. 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for NorCom Information Technology GmbH KGaA (ETR:NC5A) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company’s annual negative free cash flow, henceforth referring to it as the ‘cash burn’. We’ll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for NorCom Information Technology GmbH KGaA
Does NorCom Information Technology GmbH KGaA Have A Long Cash Runway?
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 2022, NorCom Information Technology GmbH KGaA had €1.3m in cash, and was debt-free. Looking at the last year, the company burnt through €772k. Therefore, from December 2022 it had roughly 21 months of cash runway. While that cash runway isn’t too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.
How Well Is NorCom Information Technology GmbH KGaA Growing?
One thing for shareholders to keep front in mind is that NorCom Information Technology GmbH KGaA increased its cash burn by 257% in the last twelve months. While that’s concerning on it’s own, the fact that operating revenue was actually down 7.4% over the same period makes us positively tremulous. In light of the above-mentioned, we’re pretty wary of the trajectory the company seems to be on. Of course, we’ve only taken a quick look at the stock’s growth metrics, here. You can take a look at how NorCom Information Technology GmbH KGaA has developed its business over time by checking this visualization of its revenue and earnings history.
Can NorCom Information Technology GmbH KGaA Raise More Cash Easily?
NorCom Information Technology GmbH KGaA revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
NorCom Information Technology GmbH KGaA’s cash burn of €772k is about 3.8% of its €20m market capitalisation. 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 NorCom Information Technology GmbH KGaA’s Cash Burn?
On this analysis of NorCom Information Technology GmbH KGaA’s cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we’re not too worried about its rate of cash burn. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for NorCom Information Technology GmbH KGaA (3 don’t sit too well with us!) that you should be aware of before investing here.
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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.