We can easily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service company Salesforce.com has lost money for years while growing recurring revenue, you would have done very well if you had owned shares since 2005. Nevertheless, only a fool would ignore the risk of a loss-making company using up its cash too quickly.
Given this risk, we thought we’d see if that was the case Intellicheck (NASDAQ:IDN) shareholders should be concerned about cash burn. For the purposes of this article, we’ll define cash burn as the amount of money the company spends each year to finance its growth (also called negative free cash flow). We start by comparing cash burn to cash reserves to calculate cash runway.
Check out our latest analysis for Intellicheck
A company’s cash runway is the amount of time it takes to burn through its cash reserves at its current cash burn rate. As of September 2024, Intellicheck had $5.7 million in cash and was debt-free. Looking at the last year, the company burned through $3.2 million. That means it had about 21 months of cash flow as of September 2024. Importantly, though, analysts believe Intellicheck will reach breakeven cash flow before then. In that case, it may never reach the end of its cash runway. Below you can see how cash positions have changed over time.
At first glance, it’s a bit concerning to see that Intellicheck has increased its cash burn by 8.1% year over year. At least sales were up 5.2% over the period, even if they weren’t up much. Given both of these factors, we are not particularly enthusiastic about the growth profile. However, it is clear that the crucial factor is whether the company will grow its business in the future. So you might want to take a look at how much the company is expected to grow in the coming years.
While Intellicheck seems to be in a pretty good position, it’s still worth considering how easily it could raise more money, even just to fuel faster growth. Generally, a publicly traded company can raise new cash by issuing stock or taking on debt. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise money and finance growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company going for another year (at the same burn rate).
