Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for ImmunoPrecise Antibodies (CVE:IPA) shareholders is whether they should be concerned by its rate of 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). 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 ImmunoPrecise Antibodies
Does ImmunoPrecise Antibodies 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. In July 2022, ImmunoPrecise Antibodies had CA$19m in cash, and was debt-free. In the last year, its cash burn was CA$20m. So it had a cash runway of approximately 11 months from July 2022. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.
How Well Is ImmunoPrecise Antibodies Growing?
One thing for shareholders to keep front in mind is that ImmunoPrecise Antibodies increased its cash burn by 447% in the last twelve months. That does give us pause, and we can't take much solace in the operating revenue growth of 3.9% in the same time frame. Considering these two factors together makes us nervous about the direction the company seems to be heading. 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.
Can ImmunoPrecise Antibodies Raise More Cash Easily?
Since ImmunoPrecise Antibodies has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.