Yahoo Finance We're Interested To See How SpringWorks Therapeutics (NASDAQ:SWTX) Uses Its Cash Hoard To Grow
There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for SpringWorks Therapeutics (NASDAQ:SWTX) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for SpringWorks Therapeutics
Does SpringWorks Therapeutics Have A Long Cash Runway?
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 SpringWorks Therapeutics last reported its balance sheet in September 2021, it had zero debt and cash worth US$428m. Importantly, its cash burn was US$67m over the trailing twelve months. So it had a cash runway of about 6.4 years from September 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.
How Is SpringWorks Therapeutics' Cash Burn Changing Over Time?
In our view, SpringWorks Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$35m in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Over the last year its cash burn actually increased by 4.9%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can SpringWorks Therapeutics Raise Cash?
Since its cash burn is increasing (albeit only slightly), SpringWorks Therapeutics shareholders should still be mindful of the possibility it will require 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. 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.
Since it has a market capitalisation of US$3.3b, SpringWorks Therapeutics' US$67m in cash burn equates to about 2.0% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
How Risky Is SpringWorks Therapeutics' Cash Burn Situation?
As you can probably tell by now, we're not too worried about SpringWorks Therapeutics' cash burn. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for SpringWorks Therapeutics that investors should know when investing in the stock.
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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.
