Can-Fite BioPharma (TLV:CANF) Will Have To Spend Its Cash Wisely

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 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 Can-Fite BioPharma (TLV:CANF) 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Can-Fite BioPharma

How Long Is Can-Fite BioPharma's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Can-Fite BioPharma last reported its balance sheet in December 2020, it had zero debt and cash worth US$8.3m. Importantly, its cash burn was US$12m over the trailing twelve months. That means it had a cash runway of around 8 months as of December 2020. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

How Is Can-Fite BioPharma's Cash Burn Changing Over Time?

Whilst it's great to see that Can-Fite BioPharma has already begun generating revenue from operations, last year it only produced US$763k, so we don't think it is generating significant revenue, at this point. 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. Over the last year its cash burn actually increased by 8.9%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Can-Fite BioPharma Raise Cash?

Since its cash burn is increasing (albeit only slightly), Can-Fite BioPharma shareholders should still be mindful of the possibility it will require more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Since it has a market capitalisation of US$37m, Can-Fite BioPharma's US$12m in cash burn equates to about 33% of its market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

Is Can-Fite BioPharma's Cash Burn A Worry?

We must admit that we don't think Can-Fite BioPharma is in a very strong position, when it comes to its cash burn. While its increasing cash burn wasn't too bad, its cash runway does leave us rather nervous. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Separately, we looked at different risks affecting the company and spotted 7 warning signs for Can-Fite BioPharma (of which 4 can't be ignored!) you should know about.

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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