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 software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should Kuros Biosciences (VTX:KURN) shareholders 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Kuros Biosciences
How Long Is Kuros Biosciences' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2023, Kuros Biosciences had CHF17m in cash, and was debt-free. Looking at the last year, the company burnt through CHF7.7m. Therefore, from June 2023 it had 2.2 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Kuros Biosciences Growing?
We reckon the fact that Kuros Biosciences managed to shrink its cash burn by 34% over the last year is rather encouraging. And considering that its operating revenue gained 35% during that period, that's great to see. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Kuros Biosciences is growing revenue over time by checking this visualization of past revenue growth.
How Hard Would It Be For Kuros Biosciences To Raise More Cash For Growth?
There's no doubt Kuros Biosciences seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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 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).
Kuros Biosciences has a market capitalisation of CHF79m and burnt through CHF7.7m last year, which is 9.8% 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.