Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Anatara Lifesciences (ASX:ANR) 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'.

Check out our latest analysis for Anatara Lifesciences

How Long Is Anatara Lifesciences's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Anatara Lifesciences last reported its balance sheet in June 2019, it had zero debt and cash worth AU$5.4m. Looking at the last year, the company burnt through AU$2.4m. Therefore, from June 2019 it had 2.2 years of cash runway. Notably, however, the one analyst we see covering the stock thinks that Anatara Lifesciences will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.

How Is Anatara Lifesciences's Cash Burn Changing Over Time?

Whilst it's great to see that Anatara Lifesciences has already begun generating revenue from operations, last year it only produced AU$663k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Even though it doesn't get us excited, the 27% reduction in cash burn year on year does suggest the company can continue operating for quite some time. 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.

How Easily Can Anatara Lifesciences Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Anatara Lifesciences to raise more cash in the future. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash to drive 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).