We're Not Worried About ikeGPS Group's (NZSE:IKE) Cash Burn

editorial-team@simplywallst.com (Simply Wall St)

Sun, Mar 16, 2025, 2:03 PM 4 min read

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether ikeGPS Group (NZSE:IKE) 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'. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for ikeGPS Group

Does ikeGPS Group Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When ikeGPS Group last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth NZ$6.8m. In the last year, its cash burn was NZ$3.2m. Therefore, from September 2024 it had 2.1 years of cash runway. Notably, analysts forecast that ikeGPS Group will break even (at a free cash flow level) in about 2 years. So there's a very good chance it won't need more cash, when you consider the burn rate will be reducing in that period. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis — NZSE:IKE Debt to Equity History March 16th 2025

How Well Is ikeGPS Group Growing?

Happily, ikeGPS Group is travelling in the right direction when it comes to its cash burn, which is down 77% over the last year. Unfortunately, however, operating revenue dropped 12% during the same time frame. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For ikeGPS Group To Raise More Cash For Growth?

Even though it seems like ikeGPS Group is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

ikeGPS Group has a market capitalisation of NZ$130m and burnt through NZ$3.2m last year, which is 2.4% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is ikeGPS Group's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way ikeGPS Group is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, ikeGPS Group has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.