Here's Why We're Watching Predictive Oncology's (NASDAQ:POAI) Cash Burn Situation

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Predictive Oncology (NASDAQ:POAI) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Predictive Oncology

SWOT Analysis for Predictive Oncology

How Long Is Predictive Oncology's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Predictive Oncology last reported its balance sheet in March 2023, it had zero debt and cash worth US$19m. In the last year, its cash burn was US$13m. Therefore, from March 2023 it had roughly 17 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is Predictive Oncology Growing?

Some investors might find it troubling that Predictive Oncology is actually increasing its cash burn, which is up 4.1% in the last year. To be fair, given that fact it's hardly inspiring to see that the operating revenue was flat year on year. Considering both these factors, we're not particularly excited by its growth profile. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Predictive Oncology has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Predictive Oncology To Raise More Cash For Growth?

Even though it seems like Predictive Oncology is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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. 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.

Predictive Oncology's cash burn of US$13m is about 64% of its US$21m market capitalisation. Given how large that cash burn is, relative to the market value of the entire company, we'd consider it to be a high risk stock, with the real possibility of extreme dilution.

So, Should We Worry About Predictive Oncology's Cash Burn?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Predictive Oncology's cash runway was relatively promising. Summing up, we think the Predictive Oncology's cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Predictive Oncology (of which 2 don't sit too well with us!) you should know about.

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. 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.