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As the €105m market cap Oxurion NV (EBR:OXUR) released another year of negative earnings, investors may be on edge waiting for breakeven. The single most important question to ask when you’re investing in a loss-making company is – will it need to raise cash again, and if so, when? Selling new shares may dilute the value of existing shares on issue, and since Oxurion is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Oxurion may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question.
Check out our latest analysis for Oxurion
What is cash burn?
Oxurion currently has €68m in the bank, with negative free cash flow of -€23.7m. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Furthermore, it is not uncommon to find loss-makers in an industry such as biotech. These businesses operate in a highly competitive environment and face running down its cash holdings too fast in order to keep up with innovation.
When will Oxurion need to raise more cash?
We can measure Oxurion's ongoing cash expenditure requirements by looking at free cash flow, which I define as cash flow from operations minus fixed capital investment, is a measure of how much cash a company generates/loses each year.
Over the last twelve months, free cash outflows increased by 8.8%, which is relatively reasonable for a small-cap company. According to my analysis, if Oxurion continues to grow at this rate, it will burn through its cash reserves by the next 1.1 years, and may be raising capital again. Not the best news for shareholders. This is also the case if Oxurion maintains its cash burn level of -€23.7m, without growth, going forward. Even though this is analysis is fairly basic, and Oxurion still can cut its overhead in the near future, or borrow money instead of raising new equity capital, this analysis still helps us understand how sustainable the Oxurion operation is, and when things may have to change.
Next Steps:
Loss-making companies are a risky play, especially those that are still ramping up its cash burn. Though, this shouldn’t discourage you from considering entering the stock in the future. The outcome of my analysis suggests that if the company maintains the rate of cash burn growth, it will run out of cash in the upcoming years. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next. Keep in mind I haven't considered other factors such as how OXUR is expected to perform in the future. You should continue to research Oxurion to get a more holistic view of the company by looking at: