Canada markets open in 4 hours 13 minutes
  • S&P/TSX

    20,572.11
    -142.37 (-0.69%)
     
  • S&P 500

    4,017.77
    -52.79 (-1.30%)
     
  • DOW

    33,717.09
    -260.99 (-0.77%)
     
  • CAD/USD

    0.7434
    -0.0037 (-0.50%)
     
  • CRUDE OIL

    76.66
    -1.24 (-1.59%)
     
  • BTC-CAD

    30,774.15
    -682.77 (-2.17%)
     
  • CMC Crypto 200

    518.61
    -19.26 (-3.58%)
     
  • GOLD FUTURES

    1,919.60
    -19.60 (-1.01%)
     
  • RUSSELL 2000

    1,885.72
    -25.74 (-1.35%)
     
  • 10-Yr Bond

    3.5510
    0.0000 (0.00%)
     
  • NASDAQ futures

    11,913.00
    -55.00 (-0.46%)
     
  • VOLATILITY

    20.47
    +1.96 (+10.59%)
     
  • FTSE

    7,726.81
    -58.06 (-0.75%)
     
  • NIKKEI 225

    27,327.11
    -106.29 (-0.39%)
     
  • CAD/EUR

    0.6865
    -0.0017 (-0.25%)
     

Here's Why We're Not Too Worried About BriaCell Therapeutics' (TSE:BCT) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether BriaCell Therapeutics (TSE:BCT) shareholders should be worried about its 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for BriaCell Therapeutics

When Might BriaCell Therapeutics Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at April 2022, BriaCell Therapeutics had cash of US$45m and no debt. Importantly, its cash burn was US$11m over the trailing twelve months. Therefore, from April 2022 it had 4.0 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
debt-equity-history-analysis

How Is BriaCell Therapeutics' Cash Burn Changing Over Time?

BriaCell Therapeutics didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by a very significant 82%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For BriaCell Therapeutics To Raise More Cash For Growth?

Given its cash burn trajectory, BriaCell Therapeutics shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. 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.

BriaCell Therapeutics' cash burn of US$11m is about 11% of its US$98m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About BriaCell Therapeutics' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way BriaCell Therapeutics is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for BriaCell Therapeutics (2 don't sit too well with us!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here