Here's Why We're Not Too Worried About Xtract One Technologies' (TSE:XTRA) Cash Burn Situation

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 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.

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 purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Xtract One Technologies

When Might Xtract One Technologies Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Xtract One Technologies last reported its October 2024 balance sheet in December 2024, it had zero debt and cash worth CA$6.1m. Importantly, its cash burn was CA$8.0m over the trailing twelve months. Therefore, from October 2024 it had roughly 9 months of cash runway. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.

How Well Is Xtract One Technologies Growing?

It was fairly positive to see that Xtract One Technologies reduced its cash burn by 37% during the last year. But it was the operating revenue growth of 156% that really shone. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Xtract One Technologies Raise Cash?

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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Xtract One Technologies has a market capitalisation of CA$96m and burnt through CA$8.0m last year, which is 8.3% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Xtract One Technologies' Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Xtract One Technologies' revenue growth was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Xtract One Technologies' situation. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Xtract One Technologies (1 doesn't sit too well with us!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.