We can readily understand why investors are attracted to unprofitable companies. 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. 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 Cyclopharm (ASX:CYC) shareholders should 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Cyclopharm

How Long Is Cyclopharm's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Cyclopharm last reported its balance sheet in June 2022, it had zero debt and cash worth AU$27m. In the last year, its cash burn was AU$4.1m. That means it had a cash runway of about 6.5 years as of June 2022. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Importantly, if we extrapolate recent cash burn trends, the cash runway would be noticeably longer. The image below shows how its cash balance has been changing over the last few years.

How Well Is Cyclopharm Growing?

It was fairly positive to see that Cyclopharm reduced its cash burn by 40% during the last year. And considering that its operating revenue gained 20% during that period, that's great to see. It seems to be growing nicely. 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.

Can Cyclopharm Raise More Cash Easily?

While Cyclopharm seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Cyclopharm has a market capitalisation of AU$133m and burnt through AU$4.1m last year, which is 3.1% 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.