We think Creative Technology (SGX:C76) has room to grow its business

There is no doubt that you can make money by owning shares of unprofitable companies. For example, Salesforce.com, a software-as-a-service business, has lost money for years while recurring revenue has grown, but if you’ve owned the stock since 2005, you’ve certainly seen a very It would have worked fine. Nevertheless, only a fool would ignore the risk of loss-making companies running out of cash quickly.

you should creative technology (SGX:C76) shareholders worried about cash burn? For the purposes of this article, we define cash burn as annual (negative) free cash flow. This is the amount of money a company spends each year to fund growth. First, we compare its cash burn to its cash reserves to calculate its cash runway.

Check out our latest analysis on Creative Technology.

When will creative technology funding run out?

A company’s cash runway can be calculated by dividing the amount of cash it holds by the rate at which it spends that cash. As of June 2023, Creative Technology had cash of US$56 million and no debt. Importantly, its trailing twelve month cash burn was US$12m. In other words, it had a funding runway of approximately 4.6 years from June 2023. This length of runway gives the company the time and space it needs to develop its business. You can see how its cash balance has changed over time in the image below.

Debt capital history analysis
SGX:C76 Debt to Equity History September 23, 2023

How fast is creative technology growing?

We think it’s quite encouraging to see that Creative Technology was able to reduce its cash burn by 38% in the last year. Unfortunately, however, operating revenue for the period decreased by 8.3%. Considering the factors mentioned above, the company is not doing poorly when it comes to evaluating how things are changing over time. Of course, we’ve only taken a quick look at the stock’s growth metrics here. This historical revenue and revenue graph shows how Creative Technology has built its business over time.

How easily can creative technologies be financed?

There’s no doubt that Creative Technology is in a pretty good position in terms of managing its cash burn, but even if that’s only a hypothesis, it’s hard to imagine how easily it could raise more capital to fund growth. It’s always worth asking. Companies can raise capital through debt or equity. Companies typically sell their new stock to raise cash and fuel growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to run the company for another year (at the same burn rate).

Creative Technology’s cash burn of $12 million represents about 17% of its market capitalization of $72 million. As a result, we’d venture that the company could raise more cash for growth without too much trouble, even at the cost of some dilution.

Are you worried about Creative Technology’s cash burn?

This analysis of Creative Technology’s cash burn makes us think its cash runway is reassuring, but we’re a bit worried about its declining revenue. Considering all the factors discussed in this article, we’re not too worried about the company’s cash burn, but we think shareholders should keep an eye on how the company develops. Upon further investigation, Two warning signs for creative technology You should know and not one of them should be ignored.

of course Creative Technology may not be the best stock to buy.So you might want to see this free A collection of companies with a high return on equity, or a list of stocks that insiders are buying.

Valuation is complex, but we help make it simple.

Please check it out creative technology Could be overvalued or undervalued, check out our comprehensive analysis. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.

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Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.

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