Deutsche Biotech Innovativ (DUSE:DBI) Is In A Good Position To Deliver On Growth Plans

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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 Deutsche Biotech Innovativ (DUSE:DBI) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Deutsche Biotech Innovativ

Does Deutsche Biotech Innovativ Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2020, Deutsche Biotech Innovativ had €87k in cash, and was debt-free. In the last year, its cash burn was €58k. So it had a cash runway of approximately 18 months from June 2020. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Deutsche Biotech Innovativ's Cash Burn Changing Over Time?

In the last year, Deutsche Biotech Innovativ did book revenue of €22k, but its revenue from operations was less, at just €22k. Given how low that operating leverage is, we think it's too early to put much weight on the revenue growth, so we'll focus on how the cash burn is changing, instead. Even though it doesn't get us excited, the 50% reduction in cash burn year on year does suggest the company can continue operating for quite some time. Admittedly, we're a bit cautious of Deutsche Biotech Innovativ due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Deutsche Biotech Innovativ Raise More Cash Easily?

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

Since it has a market capitalisation of €97m, Deutsche Biotech Innovativ's €58k in cash burn equates to about 0.06% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Deutsche Biotech Innovativ's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Deutsche Biotech Innovativ is burning through its cash. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. On this analysis its cash runway was its weakest feature, but we are not concerned about it. 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. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Deutsche Biotech Innovativ that investors should know when investing in the stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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