We're Interested To See How Aurinia Pharmaceuticals (NASDAQ:AUPH) Uses Its Cash Hoard To Grow

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. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

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

View our latest analysis for Aurinia Pharmaceuticals

How Long Is Aurinia Pharmaceuticals' 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. When Aurinia Pharmaceuticals last reported its March 2024 balance sheet in May 2024, it had zero debt and cash worth US$319m. Importantly, its cash burn was US$21m over the trailing twelve months. That means it had a cash runway of very many years as of March 2024. Importantly, though, analysts think that Aurinia Pharmaceuticals will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

How Well Is Aurinia Pharmaceuticals Growing?

Happily, Aurinia Pharmaceuticals is travelling in the right direction when it comes to its cash burn, which is down 68% over the last year. Pleasingly, this was achieved with the help of a 30% boost to revenue. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. 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 Aurinia Pharmaceuticals Raise Cash?

There's no doubt Aurinia Pharmaceuticals seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).

Aurinia Pharmaceuticals' cash burn of US$21m is about 2.6% of its US$789m market capitalisation. 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 Aurinia Pharmaceuticals' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Aurinia Pharmaceuticals is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even its revenue growth was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 1 warning sign for Aurinia Pharmaceuticals that you should be aware of before investing.

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.