We're Not Very Worried About Xtract One Technologies' (TSE:XTRA) Cash Burn Rate

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

Fri, Apr 4, 2025, 7:55 AM 4 min read

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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, the natural question for Xtract One Technologies (TSE:XTRA) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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How Long Is Xtract One Technologies' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at January 2025, Xtract One Technologies had cash of CA$5.4m and no debt. In the last year, its cash burn was CA$7.6m. That means it had a cash runway of around 9 months as of January 2025. Importantly, analysts think that Xtract One Technologies will reach cashflow breakeven in around 19 months. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis — TSX:XTRA Debt to Equity History April 4th 2025

View our latest analysis for Xtract One Technologies

How Well Is Xtract One Technologies Growing?

It was fairly positive to see that Xtract One Technologies reduced its cash burn by 39% during the last year. And arguably the operating revenue growth of 100% was even more impressive. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years .

Can Xtract One Technologies Raise More Cash Easily?

While Xtract One Technologies seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Xtract One Technologies has a market capitalisation of CA$92m and burnt through CA$7.6m last year, which is 8.3% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Xtract One Technologies' Cash Burn?

As you can probably tell by now, we're not too worried about Xtract One Technologies' cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Although its cash runway does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking an in-depth view of risks, we've identified 3 warning signs for Xtract One Technologies that you should be aware of before investing.

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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.