In This Article:
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for UTStarcom Holdings (NASDAQ:UTSI) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for UTStarcom Holdings
Does UTStarcom Holdings Have A Long 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. When UTStarcom Holdings last reported its balance sheet in June 2023, it had zero debt and cash worth US$49m. Looking at the last year, the company burnt through US$745k. So it had a very long cash runway of many years from June 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. Depicted below, you can see how its cash holdings have changed over time.
Is UTStarcom Holdings' Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because UTStarcom Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 11%. 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 UTStarcom Holdings is building its business over time.
How Hard Would It Be For UTStarcom Holdings To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, UTStarcom Holdings shareholders may wish to think 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.