We're Keeping An Eye On Lytix Biopharma's (OB:LYTIX) 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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Lytix Biopharma (OB:LYTIX) shareholders be worried about its 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.

See our latest analysis for Lytix Biopharma

When Might Lytix Biopharma Run Out Of Money?

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. When Lytix Biopharma last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth kr60m. Looking at the last year, the company burnt through kr87m. That means it had a cash runway of around 8 months as of June 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is Lytix Biopharma Growing?

Some investors might find it troubling that Lytix Biopharma is actually increasing its cash burn, which is up 11% in the last year. The silver lining is that revenue was up 30%, showing the business is growing at the top line. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Lytix Biopharma To Raise More Cash For Growth?

Since Lytix Biopharma has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. 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. 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).

Lytix Biopharma has a market capitalisation of kr496m and burnt through kr87m last year, which is 18% of the company's market value. 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.

How Risky Is Lytix Biopharma's Cash Burn Situation?

On this analysis of Lytix Biopharma's cash burn, we think its revenue growth was reassuring, while its cash runway has us a bit worried. 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. Taking a deeper dive, we've spotted 6 warning signs for Lytix Biopharma you should be aware of, and 3 of them are potentially serious.

Of course Lytix Biopharma 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 with high insider ownership.

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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.