We Think Pure Biologics Spólka Akcyjna (WSE:PUR) Can Afford To Drive Business Growth

Simply Wall St
January 04, 2022
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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, the natural question for Pure Biologics Spólka Akcyjna (WSE:PUR) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Pure Biologics Spólka Akcyjna

Does Pure Biologics Spólka Akcyjna Have A Long 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. As at September 2021, Pure Biologics Spólka Akcyjna had cash of zł39m and no debt. Importantly, its cash burn was zł18m over the trailing twelve months. So it had a cash runway of about 2.2 years from September 2021. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

WSE:PUR Debt to Equity History January 4th 2022

Can Pure Biologics Spólka Akcyjna Raise More Cash Easily?

Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Pure Biologics Spólka Akcyjna has a market capitalisation of zł187m and burnt through zł18m last year, which is 9.5% 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.

Is Pure Biologics Spólka Akcyjna's Cash Burn A Worry?

Because Pure Biologics Spólka Akcyjna is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. However, it is fair to say that its cash runway gave us comfort. To put it simply, we think its cash burn situation is totally fine given it is still developing its business. Taking a deeper dive, we've spotted 4 warning signs for Pure Biologics Spólka Akcyjna you should be aware of, and 2 of them are potentially serious.

Of course Pure Biologics Spólka 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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