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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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether BioCardia (NASDAQ:BCDA) shareholders should be worried about its cash burn. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for BioCardia
Does BioCardia Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When BioCardia last reported its balance sheet in December 2022, it had zero debt and cash worth US$7.4m. Importantly, its cash burn was US$11m over the trailing twelve months. That means it had a cash runway of around 8 months as of December 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is BioCardia Growing?
Over the last year, BioCardia maintained its cash burn at a fairly steady level. And in that context its operating revenue grew by 33%, which shows at least some progress. On balance, we'd say the company is improving 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 BioCardia To Raise More Cash For Growth?
Since BioCardia has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. 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).
BioCardia has a market capitalisation of US$39m and burnt through US$11m last year, which is 27% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.