Yahoo Finance We Think Oncolytics Biotech (TSE:ONC) Can Afford To Drive Business Growth
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should Oncolytics Biotech (TSE:ONC) shareholders 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for Oncolytics Biotech
Does Oncolytics Biotech Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Oncolytics Biotech last reported its balance sheet in September 2021, it had zero debt and cash worth CA$48m. Looking at the last year, the company burnt through CA$22m. Therefore, from September 2021 it had 2.2 years of cash runway. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
How Is Oncolytics Biotech's Cash Burn Changing Over Time?
Oncolytics Biotech 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. As it happens, the company's cash burn reduced by 6.7% over the last year, which suggests that management are maintaining a fairly steady rate of business development, albeit with a slight decrease in spending. 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.
Can Oncolytics Biotech Raise More Cash Easily?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Oncolytics Biotech to raise more cash in the future. 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.
Since it has a market capitalisation of CA$118m, Oncolytics Biotech's CA$22m in cash burn equates to about 19% of its market value. 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.
How Risky Is Oncolytics Biotech's Cash Burn Situation?
The good news is that in our view Oncolytics Biotech's cash burn situation gives shareholders real reason for optimism. One the one hand we have its solid cash burn reduction, while on the other it can also boast very strong cash runway. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Oncolytics Biotech's situation. Taking a deeper dive, we've spotted 5 warning signs for Oncolytics Biotech you should be aware of, and 2 of them are concerning.
Of course Oncolytics Biotech may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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.
