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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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So, the natural question for H2APEX Group (ETR:H2A) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Check out our latest analysis for H2APEX Group
When Might H2APEX Group Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2024, H2APEX Group had cash of €15m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was €27m. That means it had a cash runway of around 7 months as of September 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is H2APEX Group Growing?
Some investors might find it troubling that H2APEX Group is actually increasing its cash burn, which is up 4.1% in the last year. On the other hand, the impressive revenue growth of 707% signals that the increased expenditure may well be yielding results. Sometimes you need to spend money to make money! It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For H2APEX Group To Raise More Cash For Growth?
Since H2APEX Group has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.