We're Keeping An Eye On Arbutus Biopharma's (NASDAQ:ABUS) Cash Burn Rate

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 should Arbutus Biopharma (NASDAQ:ABUS) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Arbutus Biopharma

Does Arbutus Biopharma Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at June 2021, Arbutus Biopharma had cash of US$78m and no debt. Looking at the last year, the company burnt through US$60m. That means it had a cash runway of around 16 months as of June 2021. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Arbutus Biopharma Growing?

Arbutus Biopharma reduced its cash burn by 2.4% during the last year, which points to some degree of discipline. And operating revenue was up by 8.7% too. On balance, we'd say the company is improving over time. 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 Arbutus Biopharma Raise Cash?

Even though it seems like Arbutus Biopharma 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. 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.

Arbutus Biopharma's cash burn of US$60m is about 14% of its US$434m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Arbutus Biopharma's Cash Burn A Worry?

Arbutus Biopharma appears to be in pretty good health when it comes to its cash burn situation. One the one hand we have its solid revenue growth, while on the other it can also boast very strong cash burn relative to its market cap. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 3 warning signs for Arbutus Biopharma that investors should know when investing in the stock.

Of course Arbutus Biopharma 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. 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.
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