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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should A-Smart Holdings (SGX:BQC) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business's cash, relative to its cash burn.

See our latest analysis for A-Smart Holdings

How Long Is A-Smart Holdings's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When A-Smart Holdings last reported its balance sheet in January 2020, it had zero debt and cash worth S$4.0m. Looking at the last year, the company burnt through S$4.7m. Therefore, from January 2020 it had roughly 10 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is A-Smart Holdings Growing?

One thing for shareholders to keep front in mind is that A-Smart Holdings increased its cash burn by 229% in the last twelve months. That's not ideal, but we're made even more nervous given that operating revenue was flat over the same period. Considering these two factors together makes us nervous about the direction the company seems to be heading. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how A-Smart Holdings is building its business over time.

How Easily Can A-Smart Holdings Raise Cash?

Given the trajectory of A-Smart Holdings's cash burn, many investors will already be thinking about how it might raise more cash in the future. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

A-Smart Holdings's cash burn of S$4.7m is about 11% of its S$41m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.