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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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 Hyterra (ASX:HYT) shareholders should 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.
Does Hyterra Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2024, Hyterra had AU$20m in cash, and was debt-free. Importantly, its cash burn was AU$8.5m over the trailing twelve months. That means it had a cash runway of about 2.4 years as of December 2024. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.
View our latest analysis for Hyterra
How Is Hyterra's Cash Burn Changing Over Time?
While Hyterra did record statutory revenue of AU$95k over the last year, it didn't have any revenue from operations. That means we consider it a pre-revenue business, and we will focus our growth analysis on cash burn, for now. During the last twelve months, its cash burn actually ramped up 83%. While this spending increase is no doubt intended to drive growth, if the trend continues the company's cash runway will shrink very quickly. Admittedly, we're a bit cautious of Hyterra due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Hard Would It Be For Hyterra To Raise More Cash For Growth?
Given its cash burn trajectory, Hyterra shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.