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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether LiveWire Group (NYSE:LVWR) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for LiveWire Group

Does LiveWire Group Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at September 2024, LiveWire Group had cash of US$88m and no debt. Importantly, its cash burn was US$109m over the trailing twelve months. That means it had a cash runway of around 10 months as of September 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. The image below shows how its cash balance has been changing over the last few years.

How Well Is LiveWire Group Growing?

At first glance it's a bit worrying to see that LiveWire Group actually boosted its cash burn by 12%, year on year. And we must say we find it concerning that operating revenue dropped 3.7% over the same period. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 LiveWire Group is building its business over time.

How Hard Would It Be For LiveWire Group To Raise More Cash For Growth?

Since LiveWire Group can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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 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.

LiveWire Group has a market capitalisation of US$917m and burnt through US$109m last year, which is 12% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is LiveWire Group's Cash Burn Situation?

On this analysis of LiveWire Group's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Taking a deeper dive, we've spotted 3 warning signs for LiveWire Group you should be aware of, and 2 of them are concerning.

Of course LiveWire Group may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.