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 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 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 this risk, here's a look at whether OnTheMarket shareholders should 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. This article will first compare its cash burn with its cash reserves in order to calculate its cash runway.
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When OnTheMarket last reported its balance sheet in July 2019, it had zero debt and cash worth £8.8 million. In the last year, its cash burn was £15 million. That means it had a cash runway of around 7 months as of July 2019. Notably, analysts forecast that OnTheMarket will break even (at a free cash flow level) in about 17 months. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.
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