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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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for Arcturus Therapeutics Holdings (NASDAQ:ARCT) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for Arcturus Therapeutics Holdings
How Long Is Arcturus Therapeutics Holdings' Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Arcturus Therapeutics Holdings last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$237m. Importantly, its cash burn was US$62m over the trailing twelve months. Therefore, from September 2024 it had 3.8 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.
Is Arcturus Therapeutics Holdings' Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Arcturus Therapeutics Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Unfortunately, the last year has been a disappointment, with operating revenue dropping 46% during the period. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Arcturus Therapeutics Holdings To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, Arcturus Therapeutics Holdings shareholders may wish to think ahead to when the company may need to raise more cash. 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.