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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Clarus (NASDAQ:CLAR) 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 Clarus

How Long Is Clarus' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Clarus last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$46m. Importantly, its cash burn was US$7.3m over the trailing twelve months. Therefore, from June 2024 it had 6.3 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

Is Clarus' Revenue Growing?

Given that Clarus actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. We think that it's fairly positive to see that revenue grew 32% in the last twelve months. 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 Clarus Raise More Cash Easily?

Notwithstanding Clarus' revenue growth, it is still important to consider how it could raise more money, if it needs to. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Since it has a market capitalisation of US$156m, Clarus' US$7.3m in cash burn equates to about 4.7% of its market value. 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.