We're Keeping An Eye On Bioceltix's (WSE:BCX) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. For example, Bioceltix (WSE:BCX) shareholders have done very well over the last year, with the share price soaring by 106%. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So notwithstanding the buoyant share price, we think it's well worth asking whether Bioceltix's cash burn is too risky. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Bioceltix

How Long Is Bioceltix's Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In December 2022, Bioceltix had zł4.1m in cash, and was debt-free. Looking at the last year, the company burnt through zł8.2m. So it had a cash runway of approximately 6 months from December 2022. 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 Is Bioceltix's Cash Burn Changing Over Time?

Bioceltix didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. In fact, it ramped its spending strongly over the last year, increasing cash burn by 104%. It's fair to say that sort of rate of increase cannot be maintained for very long, without putting pressure on the balance sheet. Bioceltix makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

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

Since its cash burn is moving in the wrong direction, Bioceltix shareholders may wish to think ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Bioceltix has a market capitalisation of zł287m and burnt through zł8.2m last year, which is 2.9% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About Bioceltix's Cash Burn?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Bioceltix's cash burn relative to its market cap was relatively promising. Summing up, we think the Bioceltix's cash burn is a risk, based on the factors we mentioned in this article. On another note, Bioceltix has 5 warning signs (and 2 which don't sit too well with us) 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 insiders are buying, 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.