We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Ceres Power Holdings (LON:CWR) shareholders should 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Ceres Power Holdings

How Long Is Ceres Power Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2023, Ceres Power Holdings had UK￡140m in cash, and was debt-free. In the last year, its cash burn was UK￡49m. So it had a cash runway of about 2.9 years from December 2023. Importantly, analysts think that Ceres Power Holdings will reach cashflow breakeven in 5 years. 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.

How Well Is Ceres Power Holdings Growing?

We reckon the fact that Ceres Power Holdings managed to shrink its cash burn by 30% over the last year is rather encouraging. Revenue also improved during the period, increasing by 13%. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Ceres Power Holdings Raise Cash?

We are certainly impressed with the progress Ceres Power Holdings has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Ceres Power Holdings has a market capitalisation of UK￡279m and burnt through UK￡49m last year, which is 17% of the company's market value. 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.