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Companies Like 36Kr Holdings (NASDAQ:KRKR) Are In A Position To Invest In Growth

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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. 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 36Kr Holdings (NASDAQ:KRKR) 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'. Let's start with an examination of the business's cash, relative to its cash burn.

Check out our latest analysis for 36Kr Holdings

Does 36Kr Holdings Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2019, 36Kr Holdings had cash of CN¥267m and no debt. Looking at the last year, the company burnt through CN¥133m. That means it had a cash runway of about 2.0 years as of September 2019. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

NasdaqGM:KRKR Historical Debt, February 10th 2020
NasdaqGM:KRKR Historical Debt, February 10th 2020

How Well Is 36Kr Holdings Growing?

Notably, 36Kr Holdings actually ramped up its cash burn very hard and fast in the last year, by 169%, signifying heavy investment in the business. While that certainly give us pause, we take a lot of comfort in the strong annual revenue growth of 60%. Considering both these factors, we're not particularly excited by its growth profile. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can 36Kr Holdings Raise More Cash Easily?

While 36Kr Holdings seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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 to 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.

36Kr Holdings has a market capitalisation of CN¥1.5b and burnt through CN¥133m last year, which is 8.6% of the company's market value. 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 36Kr Holdings's Cash Burn?

On this analysis of 36Kr Holdings's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about 36Kr Holdings's situation. 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 36Kr Holdings's CEO gets paid each year.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.