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?

Given this risk, we thought we'd take a look at whether Gravitas Education Holdings (NYSE:GEHI) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Gravitas Education Holdings

Does Gravitas Education Holdings Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Gravitas Education Holdings last reported its balance sheet in June 2023, it had zero debt and cash worth US$20m. Importantly, its cash burn was US$2.2m over the trailing twelve months. That means it had a cash runway of about 9.1 years as of June 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. You can see how its cash balance has changed over time in the image below.

Is Gravitas Education Holdings' Revenue Growing?

Given that Gravitas Education Holdings 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. The grim reality for shareholders is that operating revenue fell by 69% over the last twelve months, which is not what we want to see in a cash burning company. In reality, this article only makes a short study of the company's growth data. You can take a look at how Gravitas Education Holdings has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Gravitas Education Holdings Raise Cash?

Since its revenue growth is moving in the wrong direction, Gravitas Education Holdings shareholders may wish to think ahead to when the company may need to raise more cash. 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. 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.