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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Carisma Therapeutics (NASDAQ:CARM) shareholders 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'. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Carisma Therapeutics
How Long Is Carisma Therapeutics' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, Carisma Therapeutics had cash of US$58m and no debt. Looking at the last year, the company burnt through US$79m. So it had a cash runway of approximately 9 months from March 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Importantly, if we extrapolate recent cash burn trends, the cash runway would be noticeably longer. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Carisma Therapeutics Growing?
Some investors might find it troubling that Carisma Therapeutics is actually increasing its cash burn, which is up 15% in the last year. The good news is that operating revenue increased by 23% in the last year, indicating that the business is gaining some traction. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Easily Can Carisma Therapeutics Raise Cash?
Given the trajectory of Carisma Therapeutics' cash burn, many investors will already be thinking about how it might 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 and 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).