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We can readily understand why investors are attracted to unprofitable companies. By way of example, IonQ (NYSE:IONQ) has seen its share price rise 226% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given its strong share price performance, we think it's worthwhile for IonQ shareholders to consider whether its cash burn is concerning. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for IonQ
When Might IonQ Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at September 2024, IonQ had cash of US$366m and no debt. Importantly, its cash burn was US$120m over the trailing twelve months. So it had a cash runway of about 3.0 years from September 2024. There's no doubt that this is a reassuringly long runway. 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 IonQ Growing?
IonQ boosted investment sharply in the last year, with cash burn ramping by 51%. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 90%. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For IonQ To Raise More Cash For Growth?
There's no doubt IonQ seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. 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).
IonQ's cash burn of US$120m is about 1.3% of its US$9.6b market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.