We're Interested To See How Applied BioCode (TPE:6598) Uses Its Cash Hoard To Grow

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Applied BioCode (TPE:6598) 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Applied BioCode

How Long Is Applied BioCode's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2020, Applied BioCode had NT$848m in cash, and was debt-free. Looking at the last year, the company burnt through NT$175m. That means it had a cash runway of about 4.9 years as of December 2020. Notably, however, the one analyst we see covering the stock thinks that Applied BioCode will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

How Well Is Applied BioCode Growing?

It was fairly positive to see that Applied BioCode reduced its cash burn by 48% during the last year. But the operating revenue growth of 186% was even better. 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 Applied BioCode Raise Cash?

While Applied BioCode seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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 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).

Applied BioCode's cash burn of NT$175m is about 4.5% of its NT$3.9b 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.

How Risky Is Applied BioCode's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Applied BioCode's cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even its cash burn reduction was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that at least one analyst is forecasting it will reach breakeven before too long. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Applied BioCode that investors should know when investing in the stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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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