<!-- HTML_TAG_START -->NasdaqCM:AIRG Debt to Equity History December 26th 2024<!-- HTML_TAG_END -->
Even when a business is losing money, it’s possible for shareholders to make money if they buy a good business at the right price. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for Airgain (NASDAQ:AIRG) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We’ll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Airgain
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2024, Airgain had cash of US$7.3m and no debt. Importantly, its cash burn was US$5.8m over the trailing twelve months. Therefore, from September 2024 it had roughly 15 months of cash runway. That’s not too bad, but it’s fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.
We’re hesitant to extrapolate on the recent trend to assess its cash burn, because Airgain actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company’s operating revenue moved in the wrong direction over the last twelve months, declining by 16%. 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.
Since its revenue growth is moving in the wrong direction, Airgain shareholders may wish to think ahead to when the company may need to raise more cash. 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).
Since it has a market capitalisation of US$80m, Airgain’s US$5.8m in cash burn equates to about 7.2% of its 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.
