We're Interested To See How Mindset Pharma (CSE:MSET) Uses Its Cash Hoard To Grow

Published
June 05, 2022
CNSX:MSET
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Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Mindset Pharma (CSE:MSET) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Mindset Pharma

How Long Is Mindset Pharma's 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. As at March 2022, Mindset Pharma had cash of CA$11m and no debt. Importantly, its cash burn was CA$713k over the trailing twelve months. That means it had a cash runway of very many years as of March 2022. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
CNSX:MSET Debt to Equity History June 5th 2022

How Is Mindset Pharma's Cash Burn Changing Over Time?

In our view, Mindset Pharma doesn't yet produce significant amounts of operating revenue, since it reported just CA$2.3m 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. The 85% reduction in its cash burn over the last twelve months may be good for protecting the balance sheet but it hardly points to imminent growth. In reality, this article only makes a short study of the company's growth data. You can take a look at how Mindset Pharma has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can Mindset Pharma Raise Cash?

There's no doubt Mindset Pharma's rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Mindset Pharma's cash burn of CA$713k is about 2.2% of its CA$32m market capitalisation. 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.

Is Mindset Pharma's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Mindset Pharma is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking an in-depth view of risks, we've identified 5 warning signs for Mindset Pharma that you should be aware of before investing.

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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