Is Norse Atlantic (OB:NORSE) In A Good Position To Deliver On Growth Plans?

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 should Norse Atlantic (OB:NORSE) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Norse Atlantic

How Long Is Norse Atlantic's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2022, Norse Atlantic had US$76m in cash, and was debt-free. Importantly, its cash burn was US$31m over the trailing twelve months. So it had a cash runway of about 2.4 years from June 2022. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

Can Norse Atlantic Raise More Cash Easily?

Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Since it has a market capitalisation of US$50m, Norse Atlantic's US$31m in cash burn equates to about 63% of its market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.

Is Norse Atlantic's Cash Burn A Worry?

Because Norse Atlantic is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. Having said that, we can say that its cash runway was a real positive. So while we're not too worried about its cash burn at the moment, we do think shareholders should monitor it closely. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Norse Atlantic (of which 2 are concerning!) 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 that insiders are buying.

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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.