We can readily understand why investors are attracted to unprofitable companies. By way of example, Charlotte's Web Holdings (TSE:CWEB) has seen its share price rise 159% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
In light of its strong share price run, we think now is a good time to investigate how risky Charlotte's Web Holdings' cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
How Long Is Charlotte's Web Holdings' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2026, Charlotte's Web Holdings had US$14m in cash, and was debt-free. In the last year, its cash burn was US$11m. So it had a cash runway of approximately 15 months from June 2026. Notably, however, the one analyst we see covering the stock thinks that Charlotte's Web Holdings will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.
View our latest analysis for Charlotte's Web Holdings
How Well Is Charlotte's Web Holdings Growing?
It was fairly positive to see that Charlotte's Web Holdings reduced its cash burn by 37% during the last year. Unfortunately, however, operating revenue declined by 6.9% during the period. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Charlotte's Web Holdings Raise More Cash Easily?
Even though it seems like Charlotte's Web Holdings is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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.
Charlotte's Web Holdings' cash burn of US$11m is about 14% of its US$80m market capitalisation. 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.
So, Should We Worry About Charlotte's Web Holdings' Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way Charlotte's Web Holdings is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. There's no doubt that shareholders can take a lot of heart from the fact that at least one analyst is forecasting it will reach breakeven before too long. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Charlotte's Web Holdings (of which 1 is potentially serious!) you should know about.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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.