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There's no doubt that money can be made by owning shares of unprofitable businesses. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Appen (ASX:APX) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
How Long Is Appen's Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Appen last reported its December 2024 balance sheet in February 2025, it had zero debt and cash worth US$55m. In the last year, its cash burn was US$14m. So it had a cash runway of about 4.1 years from December 2024. Importantly, though, analysts think that Appen will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.
Check out our latest analysis for Appen
How Well Is Appen Growing?
Appen managed to reduce its cash burn by 68% over the last twelve months, which suggests it's on the right flight path. Unfortunately, however, operating revenue dropped 14% during the same time frame. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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.
Can Appen Raise More Cash Easily?
There's no doubt Appen 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.