Here's Why We're Watching Brainstorm Cell Therapeutics' (NASDAQ:BCLI) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Brainstorm Cell Therapeutics (NASDAQ:BCLI) shareholders is whether they should be concerned by its rate of cash burn. 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 Brainstorm Cell Therapeutics

When Might Brainstorm Cell Therapeutics Run Out Of Money?

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. When Brainstorm Cell Therapeutics last reported its balance sheet in September 2020, it had zero debt and cash worth US$29m. Importantly, its cash burn was US$31m over the trailing twelve months. Therefore, from September 2020 it had roughly 11 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.

How Is Brainstorm Cell Therapeutics' Cash Burn Changing Over Time?

Because Brainstorm Cell Therapeutics isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. In fact, it ramped its spending strongly over the last year, increasing cash burn by 163%. It's fair to say that sort of rate of increase cannot be maintained for very long, without putting pressure on the balance sheet. 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 Hard Would It Be For Brainstorm Cell Therapeutics To Raise More Cash For Growth?

Given its cash burn trajectory, Brainstorm Cell Therapeutics shareholders should already be thinking about how easy it might be for it to raise further cash in the future. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Brainstorm Cell Therapeutics has a market capitalisation of US$161m and burnt through US$31m last year, which is 19% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is Brainstorm Cell Therapeutics' Cash Burn Situation?

On this analysis of Brainstorm Cell Therapeutics' cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Summing up, we think the Brainstorm Cell Therapeutics' cash burn is a risk, based on the factors we mentioned in this article. On another note, Brainstorm Cell Therapeutics has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

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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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