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, 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. 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 BioRestorative Therapies (NASDAQ:BRTX) shareholders should 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’. We’ll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for BioRestorative Therapies
How Long Is BioRestorative Therapies’ Cash Runway?
You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at March 2023, BioRestorative Therapies had cash of US$12m and no debt. Looking at the last year, the company burnt through US$7.0m. That means it had a cash runway of around 21 months as of March 2023. While that cash runway isn’t too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.
How Is BioRestorative Therapies’ Cash Burn Changing Over Time?
In our view, BioRestorative Therapies doesn’t yet produce significant amounts of operating revenue, since it reported just US$135k in the last twelve months. As a result, we think it’s a bit early to focus on the revenue growth, so we’ll limit ourselves to looking at how the cash burn is changing over time. Over the last year its cash burn actually increased by a very significant 65%. While this spending increase is no doubt intended to drive growth, if the trend continues the company’s cash runway will shrink very quickly. 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 BioRestorative Therapies Raise More Cash Easily?
Given its cash burn trajectory, BioRestorative Therapies shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.
BioRestorative Therapies’ cash burn of US$7.0m is about 29% of its US$24m market capitalisation. That’s fairly notable cash burn, so if the company had to sell shares to cover the cost of another year’s operations, shareholders would suffer some costly dilution.
How Risky Is BioRestorative Therapies’ Cash Burn Situation?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought BioRestorative Therapies’ cash runway was relatively promising. We don’t think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Taking a deeper dive, we’ve spotted 4 warning signs for BioRestorative Therapies you should be aware of, and 1 of them shouldn’t be ignored.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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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