There’s no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Ouster (NASDAQ:OUST) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we’ll determine its cash runway by comparing its cash burn with its cash reserves.

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A company’s cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Ouster had cash of US$172m and no debt. In the last year, its cash burn was US$37m. So it had a cash runway of about 4.6 years from December 2024. There’s no doubt that this is a reassuringly long runway. However, if we extrapolate the company’s recent cash burn trend, then it would have a longer cash run way. The image below shows how its cash balance has been changing over the last few years.

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Ouster managed to reduce its cash burn by 73% over the last twelve months, which suggests it’s on the right flight path. Pleasingly, this was achieved with the help of a 33% boost to revenue. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

There’s no doubt Ouster seems to be in a fairly good position, when it comes to managing its cash burn, but even if it’s only hypothetical, it’s always worth asking how easily it could raise more money to fund 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. 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.

Ouster’s cash burn of US$37m is about 10.0% of its US$376m 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.