Just because a company isn't making profits doesn't mean its stock price will go down. For example, biotechnology companies and mining exploration companies often lose money for years before achieving success with a new treatment or mineral discovery. But the harsh reality is that too many loss-making businesses run out of cash and go bankrupt.
you should air tasker (ASX:ART) shareholders worried about cash burn? In this article, cash burn refers to the annual rate at which an unprofitable business spends cash to fund growth. Free cash flow is negative. Let's start by examining the company's cash compared to its cash burn.
Check out our latest analysis for Airtasker.
When will Airtasker run out of money?
A company's cash runway is the amount of time it takes to use up its cash reserves at its current cash burn rate. As of December 2023, Airtasker had cash of his A$17 million and was debt-free. Last year's cash burn was AU$6m. So it had a cash runway of 2.9 years from December 2023. Notably, however, analysts believe Airtasker will break even (at a free cash flow level) by then. In that case, you may never reach the end of your financial runway. The image below shows how its cash balance has changed over the past few years.
Is Airtasker growing well?
Fortunately, Airtasker is on the right track when it comes to its cash burn, which is down 58% over the last year. It could also increase revenue by 16% over the same period. Looking back, I think we have grown quite steadily. However, it is clear that the key factor is whether the company will grow its business going forward. That's why it makes so much sense to see what analysts are predicting for the company.
How difficult will it be for Airtasker to raise more funding for growth?
There's no question that Airtasker appears to be in a pretty good position in terms of managing its cash burn, but even if that's only hypothetical, it's easy to see how it could easily raise more capital to fund growth. It's always worth asking. Generally, listed companies can raise new cash by issuing stock or taking on debt. Many companies end up issuing new shares to fund future growth. You can compare a company's cash burn to its market capitalization to find out how many new shares a company needs to issue to finance its operations for one year.
Airtasker's cash burn of A$6 million equates to about 5.1% of the company's market capitalization of A$118 million. Given that this is a fairly small percentage, it would probably be very easy for the company to fund another year of growth by issuing new shares to investors or taking out a loan.
Are you worried about Airtasker's cash burn?
As you can probably tell by now, I'm not too worried about Airtasker's cash burn. For example, we think the company's cash runway suggests that it's on the right track. Revenue growth wasn't as good, but it was still pretty encouraging. It's clearly very positive that the analysts are predicting that the company will reach breakeven soon. After considering various factors in this article, we think the company is well-positioned to continue funding growth, so we're pretty relaxed about its cash burn. After a thorough risk review, we found the following: 1 warning sign for Airtasker What you need to know before investing.
If you want to check out another company with better fundamentals, don't miss this free A list of interesting companies with a high return on equity, low debt, or a list of growing stocks.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
