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Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 ClearSign Technologies (NASDAQ:CLIR) shareholders should be worried about its cash burn. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for ClearSign Technologies
How Long Is ClearSign Technologies' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, ClearSign Technologies had US$14m in cash, and was debt-free. In the last year, its cash burn was US$5.7m. Therefore, from September 2024 it had 2.5 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.
How Well Is ClearSign Technologies Growing?
Notably, ClearSign Technologies actually ramped up its cash burn very hard and fast in the last year, by 115%, signifying heavy investment in the business. Of course, the truly verdant revenue growth of 263% in that time may well justify the growth spend. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. 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 ClearSign Technologies To Raise More Cash For Growth?
Even though it seems like ClearSign Technologies is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. 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.
ClearSign Technologies' cash burn of US$5.7m is about 9.8% of its US$58m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.