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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Corvus Pharmaceuticals (NASDAQ:CRVS) shareholders have done very well over the last year, with the share price soaring by 168%. 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 Corvus Pharmaceuticals 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for Corvus Pharmaceuticals
When Might Corvus Pharmaceuticals Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2024, Corvus Pharmaceuticals had cash of US$42m and no debt. Importantly, its cash burn was US$22m over the trailing twelve months. Therefore, from September 2024 it had roughly 23 months of cash runway. Importantly, though, analysts think that Corvus Pharmaceuticals will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Is Corvus Pharmaceuticals' Cash Burn Changing Over Time?
Corvus Pharmaceuticals didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. As it happens, the company's cash burn reduced by 16% over the last year, which suggests that management are maintaining a fairly steady rate of business development, albeit with a slight decrease in spending. 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.
Can Corvus Pharmaceuticals Raise More Cash Easily?
While Corvus Pharmaceuticals is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.