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We can readily understand why investors are attracted to unprofitable companies. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So should Protara Therapeutics (NASDAQ:TARA) 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'. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for Protara Therapeutics
How Long Is Protara Therapeutics' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Protara Therapeutics had US$90m in cash, and was debt-free. Looking at the last year, the company burnt through US$33m. So it had a cash runway of about 2.7 years from June 2024. Importantly, analysts think that Protara Therapeutics will reach cashflow breakeven in 3 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. Depicted below, you can see how its cash holdings have changed over time.
How Is Protara Therapeutics' Cash Burn Changing Over Time?
Protara Therapeutics didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. It seems likely that the business is content with its current spending, as the cash burn rate stayed steady over the last twelve months. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Protara Therapeutics To Raise More Cash For Growth?
While its cash burn is only increasing slightly, Protara Therapeutics shareholders should still consider the potential need for further cash, down the track. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).