We Think GlycoMimetics (NASDAQ:GLYC) Needs To Drive Business Growth Carefully

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should GlycoMimetics (NASDAQ:GLYC) shareholders be worried about its 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for GlycoMimetics

Does GlycoMimetics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When GlycoMimetics last reported its balance sheet in June 2021, it had zero debt and cash worth US$119m. In the last year, its cash burn was US$49m. So it had a cash runway of about 2.4 years from June 2021. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

How Well Is GlycoMimetics Growing?

At first glance it's a bit worrying to see that GlycoMimetics actually boosted its cash burn by 10%, year on year. The fact that operating revenue was down 75% only gives us further disquiet. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. 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 GlycoMimetics To Raise More Cash For Growth?

While GlycoMimetics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster 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. 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.

Since it has a market capitalisation of US$93m, GlycoMimetics' US$49m in cash burn equates to about 53% of its market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

So, Should We Worry About GlycoMimetics' Cash Burn?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought GlycoMimetics' cash runway was relatively promising. Summing up, we think the GlycoMimetics' cash burn is a risk, based on the factors we mentioned in this article. Taking an in-depth view of risks, we've identified 5 warning signs for GlycoMimetics that you should be aware of before investing.

Of course GlycoMimetics 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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