There's no doubt that money can be made by owning shares of unprofitable businesses. 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Energy Resources of Australia (ASX:ERA) shareholders is whether they should be concerned by its rate of 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Energy Resources of Australia

When Might Energy Resources of Australia Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Energy Resources of Australia last reported its December 2023 balance sheet in March 2024, it had zero debt and cash worth AU$217m. In the last year, its cash burn was AU$223m. That means it had a cash runway of around 12 months as of December 2023. 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 Energy Resources of Australia Growing?

Energy Resources of Australia actually ramped up its cash burn by a whopping 52% in the last year, which shows it is boosting investment in the business. As if that's not bad enough, the operating revenue also dropped by 38%, making us very wary indeed. 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 Energy Resources of Australia has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Energy Resources of Australia Raise Cash?

Since Energy Resources of Australia can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.