We Think Ulisse Biomed (BIT:UBM) Can 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Ulisse Biomed (BIT:UBM) 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). 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 Ulisse Biomed

Does Ulisse Biomed Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at June 2022, Ulisse Biomed had cash of €4.4m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through €2.0m. So it had a cash runway of about 2.2 years from June 2022. Notably, one analyst forecasts that Ulisse Biomed will break even (at a free cash flow level) in about 2 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

How Hard Would It Be For Ulisse Biomed To Raise More Cash For Growth?

Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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 €21m, Ulisse Biomed's €2.0m in cash burn equates to about 9.4% 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 Ulisse Biomed's Cash Burn Situation?

Because Ulisse Biomed is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. However, it is fair to say that its cash runway gave us comfort. In conclusion, we don't see why investors should be concerned with its cash burn, at least for some time. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Ulisse Biomed (2 shouldn't be ignored!) that you should be aware of before investing here.

Of course Ulisse Biomed may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.