We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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 Star Combo Pharma (ASX:S66) shareholders should 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Star Combo Pharma

When Might Star Combo Pharma Run Out Of Money?

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. As at June 2022, Star Combo Pharma had cash of AU$10m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through AU$6.8m. So it had a cash runway of approximately 18 months from June 2022. 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. You can see how its cash balance has changed over time in the image below.

How Well Is Star Combo Pharma Growing?

On balance, we think it's mildly positive that Star Combo Pharma trimmed its cash burn by 2.4% over the last twelve months. But the revenue dip of 14% in the same period was a bit concerning. Considering both these factors, we're not particularly excited by its growth profile. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Star Combo Pharma has developed its business over time by checking this visualization of its revenue and earnings history.

Can Star Combo Pharma Raise More Cash Easily?

While Star Combo Pharma 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).