Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Jumia Technologies (NYSE:JMIA) 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.

View our latest analysis for Jumia Technologies

Does Jumia Technologies Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, Jumia Technologies had US$165m in cash, and was debt-free. Importantly, its cash burn was US$43m over the trailing twelve months. That means it had a cash runway of about 3.8 years as of September 2024. There's no doubt that this is a reassuringly long runway. Importantly, if we extrapolate recent cash burn trends, the cash runway would be a lot longer. The image below shows how its cash balance has been changing over the last few years.

How Well Is Jumia Technologies Growing?

Jumia Technologies managed to reduce its cash burn by 64% over the last twelve months, which suggests it's on the right flight path. And it could also show revenue growth of 3.6% in the same period. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Jumia Technologies To Raise More Cash For Growth?

While Jumia Technologies seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Jumia Technologies has a market capitalisation of US$463m and burnt through US$43m last year, which is 9.4% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Jumia Technologies' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Jumia Technologies is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its weak point is its revenue growth, but even that wasn't too bad! 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Jumia Technologies that potential shareholders should take into account before putting money into a stock.

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.