We're A Little Worried About AGEDB Technology's (CVE:AGET) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 should AGEDB Technology (CVE:AGET) shareholders be worried about its 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for AGEDB Technology

When Might AGEDB Technology Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at January 2024, AGEDB Technology had cash of CA$2.9m and no debt. In the last year, its cash burn was CA$5.6m. Therefore, from January 2024 it had roughly 6 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. You can see how its cash balance has changed over time in the image below.

Is AGEDB Technology's Revenue Growing?

Since we don't have data on AGEDB Technology's cash burn last year, we'll focus on its revenue as measure of growth. Unfortunately, the last year has been a disappointment, with operating revenue dropping 19% during the period. In reality, this article only makes a short study of the company's growth data. You can take a look at how AGEDB Technology has developed its business over time by checking this visualization of its revenue and earnings history.

Can AGEDB Technology Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, AGEDB Technology 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. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

AGEDB Technology has a market capitalisation of CA$32m and burnt through CA$5.6m last year, which is 18% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About AGEDB Technology's Cash Burn?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought AGEDB Technology's cash burn relative to its market cap was relatively promising. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for AGEDB Technology (2 shouldn't be ignored!) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com