Here's Why We're Not Too Worried About Captor Therapeutics Spolka Akcyjna's (WSE:CTX) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Captor Therapeutics Spolka Akcyjna (WSE:CTX) shareholders is whether they should be concerned by its rate of cash burn. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Captor Therapeutics Spolka Akcyjna

How Long Is Captor Therapeutics Spolka Akcyjna's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Captor Therapeutics Spolka Akcyjna last reported its March 2024 balance sheet in May 2024, it had zero debt and cash worth zł65m. In the last year, its cash burn was zł58m. That means it had a cash runway of around 13 months as of March 2024. Importantly, the one analyst we see covering the stock thinks that Captor Therapeutics Spolka Akcyjna will reach cashflow breakeven in 3 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Captor Therapeutics Spolka Akcyjna Growing?

Notably, Captor Therapeutics Spolka Akcyjna actually ramped up its cash burn very hard and fast in the last year, by 126%, signifying heavy investment in the business. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 67% growth in revenue, over the very same year. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Captor Therapeutics Spolka Akcyjna Raise Cash?

While Captor Therapeutics Spolka Akcyjna seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Captor Therapeutics Spolka Akcyjna has a market capitalisation of zł368m and burnt through zł58m last year, which is 16% 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 Captor Therapeutics Spolka Akcyjna's Cash Burn Situation?

On this analysis of Captor Therapeutics Spolka Akcyjna's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. One real positive is that at least one analyst is forecasting that the company will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Captor Therapeutics Spolka Akcyjna's situation. On another note, Captor Therapeutics Spolka Akcyjna has 4 warning signs (and 1 which is potentially serious) we think you should know about.

Of course Captor Therapeutics Spolka Akcyjna 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com