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We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether Dawson Geophysical (NASDAQ:DWSN) 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). Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Dawson Geophysical
How Long Is Dawson Geophysical's Cash Runway?
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. When Dawson Geophysical last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$7.0m. In the last year, its cash burn was US$744k. That means it had a cash runway of about 9.4 years as of September 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.
How Well Is Dawson Geophysical Growing?
Happily, Dawson Geophysical is travelling in the right direction when it comes to its cash burn, which is down 72% over the last year. Unfortunately, however, operating revenue dropped 8.1% during the same time frame. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Dawson Geophysical is building its business over time.
Can Dawson Geophysical Raise More Cash Easily?
We are certainly impressed with the progress Dawson Geophysical has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.