We're Keeping An Eye On LENSAR's (NASDAQ:LNSR) Cash Burn Rate

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. 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 LENSAR (NASDAQ:LNSR) shareholders be worried about its 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.

See our latest analysis for LENSAR

How Long Is LENSAR's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2020, LENSAR had cash of US$43m and no debt. In the last year, its cash burn was US$19m. That means it had a cash runway of about 2.3 years as of September 2020. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

How Well Is LENSAR Growing?

LENSAR boosted investment sharply in the last year, with cash burn ramping by 54%. While that's concerning on it's own, the fact that operating revenue was actually down 13% over the same period makes us positively tremulous. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how LENSAR has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For LENSAR To Raise More Cash For Growth?

While LENSAR 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. 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 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.

Since it has a market capitalisation of US$77m, LENSAR's US$19m in cash burn equates to about 25% of its market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is LENSAR's Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought LENSAR's cash runway was relatively promising. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Taking a deeper dive, we've spotted 3 warning signs for LENSAR you should be aware of, and 1 of them is a bit concerning.

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This article by Simply Wall St is general in nature. 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.
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