In This Article:
There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Silence Therapeutics (NASDAQ:SLN) has seen its share price rise 158% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given its strong share price performance, we think it's worthwhile for Silence Therapeutics shareholders to consider whether its cash burn is concerning. 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Silence Therapeutics
When Might Silence Therapeutics Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Silence Therapeutics had UK£150m in cash, and was debt-free. Looking at the last year, the company burnt through UK£29m. Therefore, from June 2024 it had 5.1 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Silence Therapeutics Growing?
We reckon the fact that Silence Therapeutics managed to shrink its cash burn by 36% over the last year is rather encouraging. But the revenue dip of 37% in the same period was a bit concerning. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 Silence Therapeutics To Raise More Cash For Growth?
While Silence Therapeutics seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.