Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Franklin Wireless (NASDAQ:FKWL) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). 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 Franklin Wireless

How Long Is Franklin Wireless' 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. In March 2024, Franklin Wireless had US$32m in cash, and was debt-free. Importantly, its cash burn was US$2.1m over the trailing twelve months. So it had a very long cash runway of many years from March 2024. 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 Franklin Wireless Growing?

Happily, Franklin Wireless is travelling in the right direction when it comes to its cash burn, which is down 76% over the last year. Mundanely, though, operating revenue growth was flat. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. You can take a look at how Franklin Wireless has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Franklin Wireless To Raise More Cash For Growth?

We are certainly impressed with the progress Franklin Wireless has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Franklin Wireless' cash burn of US$2.1m is about 4.2% of its US$50m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.