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There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for Repare Therapeutics (NASDAQ:RPTX) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for Repare Therapeutics
Does Repare Therapeutics Have A Long Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Repare Therapeutics last reported its balance sheet in June 2023, it had zero debt and cash worth US$281m. Looking at the last year, the company burnt through US$7.7m. So it had a very long cash runway of many years from June 2023. 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 Well Is Repare Therapeutics Growing?
Repare Therapeutics managed to reduce its cash burn by 93% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. But its revenue is better yet, flying higher than Elon Musk and his rocket, with growth of 1,922% in the last year. Considering these factors, we're fairly impressed by its growth trajectory. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can Repare Therapeutics Raise Cash?
There's no doubt Repare Therapeutics 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. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.