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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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Contineum Therapeutics (NASDAQ:CTNM) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Contineum Therapeutics
When Might Contineum Therapeutics Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Contineum Therapeutics last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$214m. In the last year, its cash burn was US$34m. That means it had a cash runway of about 6.3 years as of September 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.
How Easily Can Contineum Therapeutics Raise Cash?
Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).
Contineum Therapeutics' cash burn of US$34m is about 6.7% of its US$506m market capitalisation. 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.
How Risky Is Contineum Therapeutics' Cash Burn Situation?
Given it's an early stage company, we don't have a lot of data with which to judge Contineum Therapeutics' cash burn. We would undoubtedly be more comfortable if it had reported some operating revenue. However, it is fair to say that its cash runway gave us comfort. Overall, we think its cash burn seems perfectly reasonable, and we are not concerned by it. Taking an in-depth view of risks, we've identified 2 warning signs for Contineum Therapeutics that you should be aware of before investing.