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As the kr166m market cap 2cureX AB (STO:2CUREX) released another year of negative earnings, investors may be on edge waiting for breakeven. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. Selling new shares may dilute the value of existing shares on issue, and since 2cureX is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Today I’ve examined 2cureX’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital.
See our latest analysis for 2cureX
What is cash burn?
With a negative free cash flow of -kr16.1m, 2cureX is chipping away at its kr34m cash reserves in order to run its business. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Unprofitable companies operating in the high-growth healthcare industry often face this problem, and 2cureX is no exception. The industry is highly competitive, with companies racing to innovate at the risk of burning through their cash too fast.
When will 2cureX need to raise more cash?
When negative, free cash flow (which I define as cash from operations minus fixed capital investment) can be an effective measure of how much 2cureX has to spend each year in order to keep its business running.
Free cash outflows declined by 94% over the past year, which could be an indication of 2cureX putting the brakes on ramping up high growth. Though, if the company kept its cash burn level at -kr16.1m, it may not need to raise capital for another 2.1 years. Even though this is analysis is fairly basic, and 2cureX still can cut its overhead further, or borrow money instead of raising new equity capital, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
Next Steps:
This analysis isn’t meant to deter you from 2cureX, but rather, to help you better understand the risks involved investing in loss-making companies. Now you know that even if the company was to continue to shrink its cash burn at its current rate, it will not be able to sustain its operations given the current level of cash reserves. The potential equity raising resulting from this means you might get a better deal on the share price if the company the company raises capital again. I admit this is a fairly basic analysis for 2CUREX's financial health. Other important fundamentals need to be considered as well. I suggest you continue to research 2cureX to get a better picture of the company by looking at: