Here's Why We're Not At All Concerned With Norse Atlantic's (OB:NORSE) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Norse Atlantic (OB:NORSE) 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). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Norse Atlantic

Does Norse Atlantic Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at March 2024, Norse Atlantic had cash of US$33m and no debt. Looking at the last year, the company burnt through US$599k. That means it had a cash runway of very many years as of March 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Norse Atlantic Growing?

Norse Atlantic managed to reduce its cash burn by 99% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. Arguably, however, the revenue growth of 235% during the period was even more impressive. Considering these factors, we're fairly impressed by its growth trajectory. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Norse Atlantic is growing revenue over time by checking this visualization of past revenue growth.

Can Norse Atlantic Raise More Cash Easily?

While Norse Atlantic seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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 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).

Norse Atlantic has a market capitalisation of US$131m and burnt through US$599k last year, which is 0.5% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About Norse Atlantic's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Norse Atlantic is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. And even its cash burn relative to its market cap was very encouraging. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, Norse Atlantic has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

Of course Norse Atlantic may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.