June 17, 2024
Simply Wall St


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. Indeed, RAS Technology Holdings (ASX:RTH) stock is up 126% in the last year, providing strong gains for shareholders. 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.

Given its strong share price performance, we think it’s worthwhile for RAS Technology Holdings shareholders to consider whether its cash burn is concerning. 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. Let’s start with an examination of the business’ cash, relative to its cash burn.

See our latest analysis for RAS Technology Holdings

When Might RAS Technology Holdings Run Out Of Money?

A company’s cash runway is calculated by dividing its cash hoard by its cash burn. When RAS Technology Holdings last reported its December 2023 balance sheet in February 2024, it had zero debt and cash worth AU$8.5m. Looking at the last year, the company burnt through AU$173k. So it had a very long cash runway of many years from December 2023. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

ASX:RTH Debt to Equity History June 9th 2024

How Well Is RAS Technology Holdings Growing?

RAS Technology Holdings managed to reduce its cash burn by 94% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. And revenue is up 35% in that same period; also a good sign. Considering these factors, we’re fairly impressed by its growth trajectory. In reality, this article only makes a short study of the company’s growth data. This graph of historic revenue growth shows how RAS Technology Holdings is building its business over time.

How Hard Would It Be For RAS Technology Holdings To Raise More Cash For Growth?

While RAS Technology Holdings 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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).

RAS Technology Holdings’ cash burn of AU$173k is about 0.3% of its AU$50m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is RAS Technology Holdings’ Cash Burn Situation?

As you can probably tell by now, we’re not too worried about RAS Technology Holdings’ cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. But it’s fair to say that its revenue growth was also very reassuring. Taking all the factors in this report into account, we’re not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking a deeper dive, we’ve spotted 3 warning signs for RAS Technology Holdings you should be aware of, and 1 of them is a bit concerning.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

Valuation is complex, but we’re helping make it simple.

Find out whether RAS Technology Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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

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.



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