We're Interested To See How OneSoft Solutions (CVE:OSS) 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for OneSoft Solutions (CVE:OSS) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. 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 OneSoft Solutions
How Long Is OneSoft Solutions' Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In June 2023, OneSoft Solutions had CA$5.0m in cash, and was debt-free. Importantly, its cash burn was CA$682k over the trailing twelve months. So it had a cash runway of about 7.3 years from June 2023. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.
How Well Is OneSoft Solutions Growing?
OneSoft Solutions managed to reduce its cash burn by 69% over the last twelve months, which suggests it's on the right flight path. And there's no doubt that the inspiriting revenue growth of 78% assisted in that improvement. Overall, we'd say its growth is rather impressive. In reality, this article only makes a short study of the company's growth data. You can take a look at how OneSoft Solutions is growing revenue over time by checking this visualization of past revenue growth.
How Hard Would It Be For OneSoft Solutions To Raise More Cash For Growth?
We are certainly impressed with the progress OneSoft Solutions 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. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Since it has a market capitalisation of CA$101m, OneSoft Solutions' CA$682k in cash burn equates to about 0.7% of its 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 OneSoft Solutions' Cash Burn Situation?
As you can probably tell by now, we're not too worried about OneSoft Solutions' cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even its cash burn reduction was very encouraging. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, OneSoft Solutions has 3 warning signs (and 1 which is a bit concerning) we think you should know about.
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)
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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.
