Companies Like Caliway Biopharmaceuticals (TWSE:6919) Can Afford To Invest In Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Caliway Biopharmaceuticals (TWSE:6919) shareholders have done very well over the last year, with the share price soaring by 156%. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given its strong share price performance, we think it's worthwhile for Caliway Biopharmaceuticals shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Caliway Biopharmaceuticals

How Long Is Caliway Biopharmaceuticals' 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 June 2024, Caliway Biopharmaceuticals had cash of NT$3.3b and no debt. In the last year, its cash burn was NT$566m. So it had a cash runway of about 5.9 years from June 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

How Is Caliway Biopharmaceuticals' Cash Burn Changing Over Time?

In our view, Caliway Biopharmaceuticals doesn't yet produce significant amounts of operating revenue, since it reported just NT$36m in the last twelve months. 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 43%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Caliway Biopharmaceuticals is building its business over time.

How Easily Can Caliway Biopharmaceuticals Raise Cash?

Given its cash burn trajectory, Caliway Biopharmaceuticals shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. 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).

Since it has a market capitalisation of NT$80b, Caliway Biopharmaceuticals' NT$566m in cash burn equates to about 0.7% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Caliway Biopharmaceuticals' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Caliway Biopharmaceuticals' cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Caliway Biopharmaceuticals (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.