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There's no doubt that money can be made by owning shares of unprofitable businesses. 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?
Given this risk, we thought we'd take a look at whether NanoRepro (ETR:NN6) shareholders should 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'. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for NanoRepro
When Might NanoRepro 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. When NanoRepro last reported its December 2023 balance sheet in June 2024, it had zero debt and cash worth €21m. Importantly, its cash burn was €13m over the trailing twelve months. So it had a cash runway of approximately 19 months from December 2023. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.
Is NanoRepro's Revenue Growing?
Given that NanoRepro actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Sadly, operating revenue actually dropped like a stone in the last twelve months, falling 92%, which is rather concerning. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how NanoRepro is building its business over time.
How Easily Can NanoRepro Raise Cash?
Since its revenue growth is moving in the wrong direction, NanoRepro 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. Many companies end up issuing new shares to fund future 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.
Since it has a market capitalisation of €22m, NanoRepro's €13m in cash burn equates to about 58% of its market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).