We're A Little Worried About Qualigen Therapeutics' (NASDAQ:QLGN) Cash Burn Rate

By
Simply Wall St
Published
November 22, 2021
NasdaqCM:QLGN
Source: Shutterstock

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Qualigen Therapeutics (NASDAQ:QLGN) 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.

Check out our latest analysis for Qualigen Therapeutics

Does Qualigen Therapeutics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Qualigen Therapeutics last reported its balance sheet in September 2021, it had zero debt and cash worth US$12m. Importantly, its cash burn was US$19m over the trailing twelve months. Therefore, from September 2021 it had roughly 8 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. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
NasdaqCM:QLGN Debt to Equity History November 23rd 2021

How Well Is Qualigen Therapeutics Growing?

Notably, Qualigen Therapeutics actually ramped up its cash burn very hard and fast in the last year, by 150%, signifying heavy investment in the business. While operating revenue was up over the same period, the 4.0% gain gives us scant comfort. Taken together, we think these growth metrics are a little worrying. 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 Qualigen Therapeutics To Raise More Cash For Growth?

Since Qualigen Therapeutics has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Qualigen Therapeutics' cash burn of US$19m is about 52% of its US$36m 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).

So, Should We Worry About Qualigen Therapeutics' Cash Burn?

On this analysis of Qualigen Therapeutics' cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. Once we consider the metrics mentioned in this article together, we're left with very little confidence in the company's ability to manage its cash burn, and we think it will probably need more money. On another note, we conducted an in-depth investigation of the company, and identified 7 warning signs for Qualigen Therapeutics (2 make us uncomfortable!) that you should be aware of before investing here.

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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