In This Article:
There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Syntara (ASX:SNT) has seen its share price rise 240% over the last year, delighting many shareholders. 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.
Given its strong share price performance, we think it's worthwhile for Syntara shareholders to consider whether its cash burn is concerning. 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.
We've discovered 4 warning signs about Syntara. View them for free.
How Long Is Syntara's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Syntara had cash of AU$18m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was AU$14m. That means it had a cash runway of around 16 months as of December 2024. 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.
See our latest analysis for Syntara
How Is Syntara's Cash Burn Changing Over Time?
Although Syntara reported revenue of AU$8.2m last year, it didn't actually have any revenue from operations. To us, that makes it a pre-revenue company, so we'll look to its cash burn trajectory as an assessment of its cash burn situation. With the cash burn rate up 22% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Syntara Raise More Cash Easily?
While Syntara does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. 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. 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.