In This Article:
There's no doubt that money can be made by owning shares of unprofitable businesses. 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 Polarean Imaging (LON:POLX) shareholders be worried about its 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Polarean Imaging
When Might Polarean Imaging Run Out Of Money?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In June 2024, Polarean Imaging had US$15m in cash, and was debt-free. Looking at the last year, the company burnt through US$6.3m. So it had a cash runway of about 2.4 years from June 2024. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.
How Is Polarean Imaging's Cash Burn Changing Over Time?
In the last year, Polarean Imaging did book revenue of US$1.9m, but its revenue from operations was less, at just US$1.9m. Given how low that operating leverage is, we think it's too early to put much weight on the revenue growth, so we'll focus on how the cash burn is changing, instead. Even though it doesn't get us excited, the 52% reduction in cash burn year on year does suggest the company can continue operating for quite some 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.
How Easily Can Polarean Imaging Raise Cash?
While we're comforted by the recent reduction evident from our analysis of Polarean Imaging's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Companies can raise capital through either debt or equity. 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.