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We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Prenetics Global (NASDAQ:PRE) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Prenetics Global
How Long Is Prenetics Global's Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at March 2024, Prenetics Global had cash of US$71m and no debt. Importantly, its cash burn was US$15m over the trailing twelve months. Therefore, from March 2024 it had 4.9 years of cash runway. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.
Is Prenetics Global's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Prenetics Global actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. The bad news for shareholders is that operating revenue actually plummeted 88% in the last year, which is a real concern in our view. 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.
How Hard Would It Be For Prenetics Global To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, Prenetics Global shareholders may wish to think ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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).
Prenetics Global's cash burn of US$15m is about 20% of its US$72m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.