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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 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 UTStarcom Holdings (NASDAQ:UTSI) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for UTStarcom Holdings
How Long Is UTStarcom Holdings' 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. In December 2023, UTStarcom Holdings had US$50m in cash, and was debt-free. In the last year, its cash burn was US$4.7m. That means it had a cash runway of very many years as of December 2023. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.
Is UTStarcom Holdings' Revenue Growing?
Given that UTStarcom Holdings actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Although it's hardly brilliant growth, it's good to see the company grew revenue by 12% in the last year. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how UTStarcom Holdings has developed its business over time by checking this visualization of its revenue and earnings history.
Can UTStarcom Holdings Raise More Cash Easily?
While UTStarcom Holdings is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.
UTStarcom Holdings' cash burn of US$4.7m is about 18% of its US$27m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.