RAS Technology Holdings (ASX:RTH) Is In A Strong Position To Grow Its Business

We can readily understand why investors are attracted to unprofitable companies. Indeed, RAS Technology Holdings (ASX:RTH) stock is up 198% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for RAS Technology Holdings shareholders to consider whether its cash burn is concerning. 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' cash, relative to its cash burn.

Check out our latest analysis for RAS Technology Holdings

Does RAS Technology Holdings Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2023, RAS Technology Holdings had AU$8.5m in cash, and was debt-free. Importantly, its cash burn was AU$173k over the trailing twelve months. So it had a very long cash runway of many years from December 2023. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is RAS Technology Holdings Growing?

Given our focus on RAS Technology Holdings' cash burn, we're delighted to see that it reduced its cash burn by a nifty 94%. And revenue is up 35% in that same period; also a good sign. Overall, we'd say its growth is rather impressive. In reality, this article only makes a short study of the company's growth data. You can take a look at how RAS Technology Holdings is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can RAS Technology Holdings Raise Cash?

There's no doubt RAS Technology Holdings seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

RAS Technology Holdings' cash burn of AU$173k is about 0.3% of its AU$58m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is RAS Technology Holdings' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way RAS Technology Holdings is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its revenue growth was also very reassuring. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. On another note, RAS Technology Holdings has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.