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

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Captor Therapeutics Spolka Akcyjna (WSE:CTX) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. 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 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 Captor Therapeutics Spolka Akcyjna last reported its balance sheet in June 2023, it had zero debt and cash worth zł59m. Importantly, its cash burn was zł43m over the trailing twelve months. Therefore, from June 2023 it had roughly 16 months of cash runway. Importantly, though, the one analyst we see covering the stock thinks that Captor Therapeutics Spolka Akcyjna will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.

How Well Is Captor Therapeutics Spolka Akcyjna Growing?

At first glance it's a bit worrying to see that Captor Therapeutics Spolka Akcyjna actually boosted its cash burn by 36%, year on year. On a more positive note, the operating revenue improved by 128% over the period, offering an indication that the expenditure may well be worthwhile. If that revenue does keep flowing reliably, then the company could see a strong improvement in free cash flow simply by reducing growth expenditure. It seems to be growing nicely. 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 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).

Captor Therapeutics Spolka Akcyjna has a market capitalisation of zł467m and burnt through zł43m last year, which is 9.2% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Captor Therapeutics Spolka Akcyjna's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Captor Therapeutics Spolka Akcyjna is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. It's clearly very positive to see that at least one analyst is forecasting the company will break even fairly soon. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Captor Therapeutics Spolka Akcyjna that investors should know when investing in the stock.

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 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.