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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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given this risk, we thought we'd take a look at whether Sunda Energy (LON:SNDA) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Sunda Energy
When Might Sunda Energy Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Sunda Energy last reported its June 2024 balance sheet in September 2024, it had zero debt and cash worth UK£4.5m. In the last year, its cash burn was UK£2.9m. That means it had a cash runway of around 19 months as of June 2024. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Importantly, if we extrapolate recent cash burn trends, the cash runway would be noticeably longer. The image below shows how its cash balance has been changing over the last few years.
How Is Sunda Energy's Cash Burn Changing Over Time?
Because Sunda Energy isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. With cash burn dropping by 2.3% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. Admittedly, we're a bit cautious of Sunda Energy due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.
Can Sunda Energy Raise More Cash Easily?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Sunda Energy to raise more cash in the future. Companies can raise capital through either debt or equity. 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 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).