There's no doubt that money can be made by owning shares of unprofitable businesses. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Shield Therapeutics (LON:STX) 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). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Shield Therapeutics

When Might Shield Therapeutics 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 2021, Shield Therapeutics had UK£12m in cash, and was debt-free. Looking at the last year, the company burnt through UK£19m. So it had a cash runway of approximately 8 months from December 2021. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. You can see how its cash balance has changed over time in the image below.

How Well Is Shield Therapeutics Growing?

It was quite stunning to see that Shield Therapeutics increased its cash burn by 1,221% over the last year. If that's not bad enough, it actually saw operating revenue decrease by a whopping 85% over the last year, suggesting the company is going through some sort of dangerous transition. 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. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Shield Therapeutics Raise More Cash Easily?

Given its revenue and free cash flow are both moving in the wrong direction, shareholders may well be wondering how easily Shield Therapeutics could raise cash. 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 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).