Is Bio-Works Technologies (STO:BIOWKS) In A Good Position To Invest In Growth?

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. Indeed, Bio-Works Technologies (STO:BIOWKS) stock is up 128% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for Bio-Works Technologies shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Bio-Works Technologies

How Long Is Bio-Works Technologies' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Bio-Works Technologies last reported its balance sheet in December 2020, it had zero debt and cash worth kr33m. Importantly, its cash burn was kr44m over the trailing twelve months. Therefore, from December 2020 it had roughly 9 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. Depicted below, you can see how its cash holdings have changed over time.

How Is Bio-Works Technologies' Cash Burn Changing Over Time?

Whilst it's great to see that Bio-Works Technologies has already begun generating revenue from operations, last year it only produced kr7.2m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Over the last year its cash burn actually increased by 8.4%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. 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.

Can Bio-Works Technologies Raise More Cash Easily?

Since its cash burn is increasing (albeit only slightly), Bio-Works Technologies shareholders should still be mindful of the possibility it will require more cash in the future. 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).

Bio-Works Technologies' cash burn of kr44m is about 7.7% of its kr566m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Bio-Works Technologies' Cash Burn A Worry?

On this analysis of Bio-Works Technologies' cash burn, we think its cash burn relative to its market cap 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. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Bio-Works Technologies (2 shouldn't be ignored!) that you should be aware of before investing here.

Of course Bio-Works Technologies 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. 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.
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