Here's Why We're Not At All Concerned With Kuros Biosciences' (VTX:KURN) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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.

Given this risk, we thought we'd take a look at whether Kuros Biosciences (VTX:KURN) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Kuros Biosciences

When Might Kuros Biosciences Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2021, Kuros Biosciences had cash of CHF29m and no debt. Importantly, its cash burn was CHF5.8m over the trailing twelve months. So it had a cash runway of about 4.9 years from December 2021. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Kuros Biosciences Growing?

We reckon the fact that Kuros Biosciences managed to shrink its cash burn by 38% over the last year is rather encouraging. But the operating revenue growth of 242% was even better. It seems to be growing nicely. In reality, this article only makes a short study of the company's growth data. You can take a look at how Kuros Biosciences is growing revenue over time by checking this visualization of past revenue growth.

How Hard Would It Be For Kuros Biosciences To Raise More Cash For Growth?

We are certainly impressed with the progress Kuros Biosciences has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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 CHF64m, Kuros Biosciences' CHF5.8m in cash burn equates to about 9.1% 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 Kuros Biosciences' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Kuros Biosciences' cash burn. For example, we think its revenue growth suggests that the company is on a good path. Its cash burn reduction wasn't quite as good, but was still rather encouraging! 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. An in-depth examination of risks revealed 1 warning sign for Kuros Biosciences that readers should think about before committing capital to this 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.