We're Keeping An Eye On OncoTherapy Science's (TSE:4564) Cash Burn Rate

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 OncoTherapy Science (TSE:4564) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for OncoTherapy Science

How Long Is OncoTherapy Science's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, OncoTherapy Science had JP¥1.1b in cash, and was debt-free. Looking at the last year, the company burnt through JP¥926m. That means it had a cash runway of around 14 months as of September 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is OncoTherapy Science Growing?

We reckon the fact that OncoTherapy Science managed to shrink its cash burn by 20% over the last year is rather encouraging. But it makes us pessimistic to see that operating revenue slid 51% in that time. Taken together, we think these growth metrics are a little worrying. In reality, this article only makes a short study of the company's growth data. You can take a look at how OncoTherapy Science has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can OncoTherapy Science Raise Cash?

Given OncoTherapy Science's revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving growth. Companies can raise capital through either debt or equity. 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.

OncoTherapy Science's cash burn of JP¥926m is about 12% of its JP¥7.9b market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About OncoTherapy Science's Cash Burn?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought OncoTherapy Science's cash burn relative to its market cap was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, OncoTherapy Science has 5 warning signs (and 2 which are concerning) we think you should know about.

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.