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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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So should Urbanise.com (ASX:UBN) shareholders 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). 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 Urbanise.com
Does Urbanise.com 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 Urbanise.com last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth AU$2.0m. Importantly, its cash burn was AU$2.1m over the trailing twelve months. So it had a cash runway of approximately 12 months from June 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.
How Well Is Urbanise.com Growing?
It was fairly positive to see that Urbanise.com reduced its cash burn by 26% during the last year. However, operating revenue was basically flat over that time period. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Urbanise.com is building its business over time.
Can Urbanise.com Raise More Cash Easily?
While Urbanise.com 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. 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.