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We can readily understand why investors are attracted to unprofitable companies. 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.
Given this risk, we thought we'd take a look at whether Aprea Therapeutics (NASDAQ:APRE) shareholders should 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Aprea Therapeutics
When Might Aprea Therapeutics Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Aprea Therapeutics last reported its balance sheet in September 2023, it had zero debt and cash worth US$25m. Importantly, its cash burn was US$13m over the trailing twelve months. So it had a cash runway of about 2.0 years from September 2023. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
How Is Aprea Therapeutics' Cash Burn Changing Over Time?
In our view, Aprea Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$569k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Notably, its cash burn was actually down by 60% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Aprea Therapeutics Raise Cash?
While we're comforted by the recent reduction evident from our analysis of Aprea Therapeutics' cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. 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 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.