Yahoo Finance We're Not Worried About Kelso Technologies' (TSE:KLS) Cash Burn
We can readily understand why investors are attracted to unprofitable companies. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
Given this risk, we thought we'd take a look at whether Kelso Technologies (TSE:KLS) shareholders should be worried about its cash burn. 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 Kelso Technologies
How Long Is Kelso Technologies' Cash Runway?
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. As at September 2022, Kelso Technologies had cash of US$2.8m and no debt. Importantly, its cash burn was US$363k over the trailing twelve months. So it had a cash runway of about 7.8 years from September 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.
How Well Is Kelso Technologies Growing?
Given our focus on Kelso Technologies' cash burn, we're delighted to see that it reduced its cash burn by a nifty 90%. And there's no doubt that the inspiriting revenue growth of 54% assisted in that improvement. Overall, we'd say its growth is rather impressive. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Kelso Technologies is building its business over time.
Can Kelso Technologies Raise More Cash Easily?
There's no doubt Kelso Technologies 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. 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. 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.
Kelso Technologies' cash burn of US$363k is about 1.7% of its US$21m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
How Risky Is Kelso Technologies' Cash Burn Situation?
As you can probably tell by now, we're not too worried about Kelso Technologies' cash burn. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. And even its cash burn relative to its market cap was very encouraging. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Taking an in-depth view of risks, we've identified 1 warning sign for Kelso Technologies that you should be aware of before investing.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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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.
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