We Think Relief Therapeutics Holding (VTX:RLF) Can Easily Afford To Drive Business Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 Relief Therapeutics Holding (VTX:RLF) shareholders should be worried about its 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Relief Therapeutics Holding

Does Relief Therapeutics Holding Have A Long 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. Relief Therapeutics Holding has such a small amount of debt that we'll set it aside, and focus on the CHF11m in cash it held at June 2024. In the last year, its cash burn was CHF1.6m. So it had a cash runway of about 6.8 years from June 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is Relief Therapeutics Holding Growing?

Relief Therapeutics Holding managed to reduce its cash burn by 92% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. And revenue is up 47% in that same period; also a good sign. Overall, we'd say its growth is rather impressive. In reality, this article only makes a short study of the company's growth data. You can take a look at how Relief Therapeutics Holding is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can Relief Therapeutics Holding Raise Cash?

While Relief Therapeutics Holding seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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. 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.

Relief Therapeutics Holding has a market capitalisation of CHF52m and burnt through CHF1.6m last year, which is 3.0% 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 Relief Therapeutics Holding's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Relief Therapeutics Holding's cash burn. For example, we think its cash burn reduction 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. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Relief Therapeutics Holding (2 don't sit too well with us!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, 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.