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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 LanzaTech Global (NASDAQ:LNZA) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for LanzaTech Global
Does LanzaTech Global Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When LanzaTech Global last reported its balance sheet in September 2022, it had zero debt and cash worth US$50m. Looking at the last year, the company burnt through US$95m. So it had a cash runway of approximately 6 months from September 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is LanzaTech Global Growing?
LanzaTech Global boosted investment sharply in the last year, with cash burn ramping by 99%. But the silver lining is that operating revenue increased by 29% in that time. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how LanzaTech Global has developed its business over time by checking this visualization of its revenue and earnings history.
How Easily Can LanzaTech Global Raise Cash?
Given the trajectory of LanzaTech Global's cash burn, many investors will already be thinking about how it might raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.
Since it has a market capitalisation of US$1.3b, LanzaTech Global's US$95m in cash burn equates to about 7.2% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.