We're Hopeful That InnoCan Pharma (CSE:INNO) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. 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.

So, the natural question for InnoCan Pharma (CSE:INNO) 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). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for InnoCan Pharma

When Might InnoCan Pharma Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, InnoCan Pharma had cash of US$4.6m and no debt. Looking at the last year, the company burnt through US$3.5m. Therefore, from March 2024 it had roughly 16 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.

How Well Is InnoCan Pharma Growing?

We reckon the fact that InnoCan Pharma managed to shrink its cash burn by 38% over the last year is rather encouraging. But this achievement is overshadowed by the brilliant operating revenue growth of 389%. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. You can take a look at how InnoCan Pharma is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For InnoCan Pharma To Raise More Cash For Growth?

Even though it seems like InnoCan Pharma is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 US$47m, InnoCan Pharma's US$3.5m in cash burn equates to about 7.5% 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.

How Risky Is InnoCan Pharma's Cash Burn Situation?

As you can probably tell by now, we're not too worried about InnoCan Pharma's cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Its weak point is its cash runway, but even that wasn't too bad! 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. An in-depth examination of risks revealed 2 warning signs for InnoCan Pharma that readers should think about before committing capital to this 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. 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.