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Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 should Maui Land & Pineapple Company (NYSE:MLP) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
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When Might Maui Land & Pineapple Company Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, Maui Land & Pineapple Company had cash of US$8.0m and no debt. In the last year, its cash burn was US$2.9m. That means it had a cash runway of about 2.7 years as of March 2024. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.
Is Maui Land & Pineapple Company's Revenue Growing?
Given that Maui Land & Pineapple Company 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. Unfortunately, the last year has been a disappointment, with operating revenue dropping 47% during the period. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Maui Land & Pineapple Company is building its business over time.
How Hard Would It Be For Maui Land & Pineapple Company To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, Maui Land & Pineapple Company 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.