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We can readily understand why investors are attracted to unprofitable companies. For example, Sintana Energy (CVE:SEI) shareholders have done very well over the last year, with the share price soaring by 289%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Sintana Energy's cash burn is. 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. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Sintana Energy

How Long Is Sintana Energy's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, Sintana Energy had CA$20m in cash, and was debt-free. In the last year, its cash burn was CA$7.7m. That means it had a cash runway of about 2.6 years as of September 2024. Arguably, that's a prudent and sensible length of runway to have. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. You can see how its cash balance has changed over time in the image below.

How Is Sintana Energy's Cash Burn Changing Over Time?

Because Sintana Energy isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. During the last twelve months, its cash burn actually ramped up 67%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. Sintana Energy makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Sintana Energy Raise More Cash Easily?

While Sintana Energy does have a solid cash runway, its cash burn trajectory may have some shareholders thinking 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.