We're Keeping An Eye On Oncternal Therapeutics' (NASDAQ:ONCT) Cash Burn Rate

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 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Oncternal Therapeutics (NASDAQ:ONCT) shareholders 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Oncternal Therapeutics

When Might Oncternal 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. As at December 2021, Oncternal Therapeutics had cash of US$91m and no debt. Importantly, its cash burn was US$27m over the trailing twelve months. Therefore, from December 2021 it had 3.4 years of cash runway. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Oncternal Therapeutics Growing?

Oncternal Therapeutics boosted investment sharply in the last year, with cash burn ramping by 52%. But the silver lining is that operating revenue increased by 28% in that time. On balance, we'd say the company is improving 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 Hard Would It Be For Oncternal Therapeutics To Raise More Cash For Growth?

While Oncternal Therapeutics seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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 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).

Oncternal Therapeutics' cash burn of US$27m is about 46% of its US$58m market capitalisation. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

Is Oncternal Therapeutics' Cash Burn A Worry?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Oncternal Therapeutics' cash runway was relatively promising. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, Oncternal Therapeutics has 5 warning signs (and 1 which can't be ignored) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.