Yahoo Finance Will GSI Technology (NASDAQ:GSIT) Spend Its Cash Wisely?
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should GSI Technology (NASDAQ:GSIT) shareholders 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 GSI Technology
When Might GSI Technology Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2024, GSI Technology had US$14m in cash, and was debt-free. In the last year, its cash burn was US$15m. So it had a cash runway of approximately 11 months from March 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.
How Well Is GSI Technology Growing?
GSI Technology reduced its cash burn by 9.7% during the last year, which points to some degree of discipline. But the revenue dip of 27% in the same period was a bit concerning. Considering both these factors, we're not particularly excited by its growth profile. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how GSI Technology has developed its business over time by checking this visualization of its revenue and earnings history.
Can GSI Technology Raise More Cash Easily?
Given GSI Technology's revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving growth. 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. 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.
GSI Technology has a market capitalisation of US$67m and burnt through US$15m last year, which is 23% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.
How Risky Is GSI Technology's Cash Burn Situation?
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought GSI Technology's cash burn reduction was relatively promising. Summing up, we think the GSI Technology's cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 5 warning signs for GSI Technology (of which 3 are a bit unpleasant!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)
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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.
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