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.

Given this risk, we thought we'd take a look at whether Oxford BioDynamics (LON:OBD) shareholders should be worried about its 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Oxford BioDynamics

Does Oxford BioDynamics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Oxford BioDynamics last reported its balance sheet in March 2022, it had zero debt and cash worth UK£4.6m. Looking at the last year, the company burnt through UK£8.6m. So it had a cash runway of approximately 6 months from March 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Oxford BioDynamics' Cash Burn Changing Over Time?

In the last year, Oxford BioDynamics did book revenue of UK£176k, but its revenue from operations was less, at just UK£176k. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. Over the last year its cash burn actually increased by a very significant 55%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. Oxford BioDynamics makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Oxford BioDynamics Raise More Cash Easily?

Since its cash burn is moving in the wrong direction, Oxford BioDynamics shareholders may wish to think ahead to when the company may need to raise more cash. 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.