Just because a business does not make any money, does not mean that the stock will go down. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Next Science (ASX:NXS) 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). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Next Science

When Might Next Science Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Next Science last reported its balance sheet in June 2022, it had zero debt and cash worth US$11m. Looking at the last year, the company burnt through US$12m. Therefore, from June 2022 it had roughly 11 months of cash runway. Importantly, analysts think that Next Science will reach cashflow breakeven in around 16 months. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

How Well Is Next Science Growing?

Some investors might find it troubling that Next Science is actually increasing its cash burn, which is up 11% in the last year. But looking on the bright side, its revenue gained by 66%, lending some credence to the growth narrative. The company needs to keep up that growth, if it is to really please shareholders. We think it is growing rather well, upon reflection. 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.

Can Next Science Raise More Cash Easily?

While Next Science seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster 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.