Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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.

So should Geospace Technologies (NASDAQ:GEOS) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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How Long Is Geospace Technologies' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Geospace Technologies had cash of US$22m and no debt. Importantly, its cash burn was US$36m over the trailing twelve months. That means it had a cash runway of around 7 months as of December 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.

View our latest analysis for Geospace Technologies

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. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 14%. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Geospace Technologies is building its business over time.

Can Geospace Technologies Raise More Cash Easily?

Given its problematic fall in revenue, Geospace Technologies shareholders should consider how the company could fund its growth, if it turns out it needs more cash. 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. 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.

Geospace Technologies has a market capitalisation of US$82m and burnt through US$36m last year, which is 43% of the company's market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

How Risky Is Geospace Technologies' Cash Burn Situation?

We must admit that we don't think Geospace Technologies is in a very strong position, when it comes to its cash burn. Although we can understand if some shareholders find its falling revenue acceptable, we can't ignore the fact that we consider its cash runway to be downright troublesome. After looking at that range of measures, we think shareholders should be extremely attentive to how the company is using its cash, as the cash burn makes us uncomfortable. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Geospace Technologies (1 is a bit unpleasant!) that you should be aware of before investing here.

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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.