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. Indeed, Amaero International (ASX:3DA) stock is up 109% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for Amaero International shareholders to consider whether its cash burn is concerning. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Amaero International

How Long Is Amaero International's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Amaero International last reported its December 2023 balance sheet in February 2024, it had zero debt and cash worth AU$12m. Looking at the last year, the company burnt through AU$11m. That means it had a cash runway of around 13 months as of December 2023. Importantly, the one analyst we see covering the stock thinks that Amaero International will reach cashflow breakeven in 3 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.

How Is Amaero International's Cash Burn Changing Over Time?

Whilst it's great to see that Amaero International has already begun generating revenue from operations, last year it only produced AU$839k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. With cash burn dropping by 10% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Amaero International Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Amaero International to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Amaero International's cash burn of AU$11m is about 6.3% of its AU$175m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Amaero International's Cash Burn?

Amaero International appears to be in pretty good health when it comes to its cash burn situation. Not only was its cash burn reduction quite good, but its cash burn relative to its market cap was a real positive. Shareholders can take heart from the fact that at least one analyst is forecasting it will reach breakeven. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Taking a deeper dive, we've spotted 4 warning signs for Amaero International you should be aware of, and 2 of them don't sit too well with us.

Of course Amaero International may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.