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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Geospace Technologies (NASDAQ:GEOS) shareholders is whether they should be concerned by its rate of 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'.

View our latest analysis for Geospace Technologies

Does Geospace Technologies Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, Geospace Technologies had US$37m in cash, and was debt-free. Looking at the last year, the company burnt through US$21m. So it had a cash runway of approximately 21 months from September 2024. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

Is Geospace Technologies' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Geospace Technologies actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. While it's not that amazing, we still think that the 8.9% increase in revenue from operations was a positive. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Geospace Technologies has developed its business over time by checking this visualization of its revenue and earnings history.

Can Geospace Technologies Raise More Cash Easily?

Notwithstanding Geospace Technologies' 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. 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).

Geospace Technologies' cash burn of US$21m is about 15% of its US$143m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About Geospace Technologies' Cash Burn?

The good news is that in our view Geospace Technologies' cash burn situation gives shareholders real reason for optimism. Not only was its cash burn relative to its market cap quite good, but its cash runway was a real positive. 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. While it's important to consider hard data like the metrics discussed above, many investors would also be interested to note that Geospace Technologies insiders have been trading shares in the company. Click here to find out if they have been buying or selling.

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.