There's no doubt that money can be made by owning shares of unprofitable businesses. 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 Keytone Dairy (ASX:KTD) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Keytone Dairy

How Long Is Keytone Dairy's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Keytone Dairy last reported its balance sheet in September 2019, it had zero debt and cash worth AU$10m. In the last year, its cash burn was AU$6.5m. Therefore, from September 2019 it had roughly 19 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Keytone Dairy Growing?

Notably, Keytone Dairy actually ramped up its cash burn very hard and fast in the last year, by 111%, signifying heavy investment in the business. It seems likely that the vociferous operating revenue growth of 210% during that time may well have given management confidence to ramp investment. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Keytone Dairy is growing revenue over time by checking this visualization of past revenue growth.

Can Keytone Dairy Raise More Cash Easily?

Even though it seems like Keytone Dairy is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.