Companies Like Champions Oncology (NASDAQ:CSBR) Can Afford To Invest In Growth

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

Given this risk, we thought we'd take a look at whether Champions Oncology (NASDAQ:CSBR) shareholders should be worried about its 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). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Champions Oncology

How Long Is Champions Oncology's 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 July 2024, Champions Oncology had cash of US$2.9m and no debt. In the last year, its cash burn was US$2.0m. So it had a cash runway of approximately 17 months from July 2024. Notably, however, the one analyst we see covering the stock thinks that Champions Oncology will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

How Well Is Champions Oncology Growing?

It was fairly positive to see that Champions Oncology reduced its cash burn by 23% during the last year. Having said that, the flat operating revenue was a bit mundane. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Champions Oncology Raise Cash?

Even though it seems like Champions 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. Many companies end up issuing new shares to fund future 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.

Champions Oncology's cash burn of US$2.0m is about 3.4% of its US$59m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is Champions Oncology's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Champions Oncology's cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. There's no doubt that shareholders can take a lot of heart from the fact that at least one analyst is forecasting it will reach breakeven before too long. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Champions Oncology that investors should know when investing in the stock.

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.