We're Not Very Worried About Imagion Biosystems' (ASX:IBX) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. For example, Imagion Biosystems (ASX:IBX) shareholders have done very well over the last year, with the share price soaring by 520%. 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 Imagion Biosystems shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Imagion Biosystems

Does Imagion Biosystems Have A Long Cash Runway?

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. When Imagion Biosystems last reported its balance sheet in December 2020, it had zero debt and cash worth AU$13m. In the last year, its cash burn was AU$4.6m. So it had a cash runway of about 2.9 years from December 2020. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

How Well Is Imagion Biosystems Growing?

Some investors might find it troubling that Imagion Biosystems is actually increasing its cash burn, which is up 11% in the last year. The revenue growth of 8.3% gives a ray of hope, at the very least. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. You can take a look at how Imagion Biosystems has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Imagion Biosystems Raise Cash?

Even though it seems like Imagion Biosystems is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of AU$97m, Imagion Biosystems' AU$4.6m in cash burn equates to about 4.8% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Imagion Biosystems' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Imagion Biosystems 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. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. 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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 4 warning signs for Imagion Biosystems that investors should know when investing in the stock.

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)

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This article by Simply Wall St is general in nature. 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.
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