We're Not Very Worried About Cardiol Therapeutics' (TSE:CRDL) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Cardiol Therapeutics (TSE:CRDL) has seen its share price rise 136% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Cardiol Therapeutics' cash burn is. 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.

View our latest analysis for Cardiol Therapeutics

When Might Cardiol Therapeutics Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Cardiol Therapeutics had CA$24m in cash, and was debt-free. In the last year, its cash burn was CA$22m. So it had a cash runway of approximately 13 months from June 2024. Importantly, analysts think that Cardiol Therapeutics will reach cashflow breakeven in 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Cardiol Therapeutics' Cash Burn Changing Over Time?

Cardiol Therapeutics didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 27% over the last year suggests some degree of prudence. 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 Cardiol Therapeutics Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Cardiol Therapeutics to raise more cash in the future. 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).

Cardiol Therapeutics has a market capitalisation of CA$219m and burnt through CA$22m last year, which is 9.8% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is Cardiol Therapeutics' Cash Burn A Worry?

Cardiol Therapeutics appears to be in pretty good health when it comes to its cash burn situation. One the one hand we have its solid cash burn reduction, while on the other it can also boast very strong cash burn relative to its market cap. One real positive is that analysts are forecasting that the company will reach breakeven. 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 Cardiol Therapeutics' situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Cardiol Therapeutics (of which 1 doesn't sit too well with us!) you should know about.

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.