We can readily understand why investors are attracted to unprofitable companies. By way of example, MYT Netherlands Parent B.V (NYSE:MYTE) has seen its share price rise 114% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether MYT Netherlands Parent B.V's cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Does MYT Netherlands Parent B.V Have A Long 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. When MYT Netherlands Parent B.V last reported its June 2024 balance sheet in September 2024, it had zero debt and cash worth €15m. Importantly, its cash burn was €1.8m over the trailing twelve months. Therefore, from June 2024 it had 8.4 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is MYT Netherlands Parent B.V Growing?

Given our focus on MYT Netherlands Parent B.V's cash burn, we're delighted to see that it reduced its cash burn by a nifty 98%. And while hardly exciting, it was still good to see revenue growth of 9.8% during that time. We think it is growing rather well, upon reflection. 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.

How Hard Would It Be For MYT Netherlands Parent B.V To Raise More Cash For Growth?

There's no doubt MYT Netherlands Parent B.V seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund 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 and fund 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 €335m, MYT Netherlands Parent B.V's €1.8m in cash burn equates to about 0.5% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is MYT Netherlands Parent B.V's Cash Burn Situation?

As you can probably tell by now, we're not too worried about MYT Netherlands Parent B.V's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking an in-depth view of risks, we've identified 1 warning sign for MYT Netherlands Parent B.V that you should be aware of before investing.

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.