There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Planet Green Holdings (NYSEMKT:PLAG) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Planet Green Holdings

How Long Is Planet Green Holdings' Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at September 2020, Planet Green Holdings had cash of US$5.6m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through US$3.0m. That means it had a cash runway of around 22 months as of September 2020. Importantly, though, the one analyst we see covering the stock thinks that Planet Green Holdings will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.

How Well Is Planet Green Holdings Growing?

Planet Green Holdings managed to reduce its cash burn by 79% over the last twelve months, which suggests it's on the right flight path. And revenue is up 47% in that same period; also a good sign. Overall, we'd say its growth is rather impressive. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Planet Green Holdings is building its business over time.

Can Planet Green Holdings Raise More Cash Easily?

While Planet Green Holdings seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).