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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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Cyclopharm (ASX:CYC) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Our free stock report includes 2 warning signs investors should be aware of before investing in Cyclopharm. Read for free now.
When Might Cyclopharm Run Out Of Money?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In December 2024, Cyclopharm had AU$21m in cash, and was debt-free. In the last year, its cash burn was AU$14m. So it had a cash runway of approximately 18 months from December 2024. Importantly, though, the one analyst we see covering the stock thinks that Cyclopharm will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.
Check out our latest analysis for Cyclopharm
How Well Is Cyclopharm Growing?
Cyclopharm boosted investment sharply in the last year, with cash burn ramping by 75%. That does give us pause, and we can't take much solace in the operating revenue growth of 4.7% in the same time frame. Considering both these metrics, we're a little concerned about how the company is developing. 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 Cyclopharm Raise Cash?
While Cyclopharm seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster 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.