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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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should Context Therapeutics (NASDAQ:CNTX) 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'. 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 Context Therapeutics
Does Context Therapeutics Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2022, Context Therapeutics had US$46m in cash, and was debt-free. Looking at the last year, the company burnt through US$11m. That means it had a cash runway of about 4.1 years as of March 2022. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.
How Is Context Therapeutics' Cash Burn Changing Over Time?
Context Therapeutics didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Its cash burn positively exploded in the last year, up 337%. We certainly hope for shareholders' sake that the money is well spent, because that kind of expenditure increase always makes us nervous. 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 Hard Would It Be For Context Therapeutics To Raise More Cash For Growth?
Given its cash burn trajectory, Context Therapeutics shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. 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).
Context Therapeutics has a market capitalisation of US$23m and burnt through US$11m last year, which is 48% of the company's market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).