Here's Why We're Watching Yield10 Bioscience's (NASDAQ:YTEN) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, Yield10 Bioscience (NASDAQ:YTEN) shareholders have done very well over the last year, with the share price soaring by 138%. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So notwithstanding the buoyant share price, we think it's well worth asking whether Yield10 Bioscience's cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Yield10 Bioscience

Does Yield10 Bioscience Have A Long 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. In December 2020, Yield10 Bioscience had US$9.7m in cash, and was debt-free. Looking at the last year, the company burnt through US$8.7m. That means it had a cash runway of around 13 months as of December 2020. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

How Is Yield10 Bioscience's Cash Burn Changing Over Time?

Whilst it's great to see that Yield10 Bioscience has already begun generating revenue from operations, last year it only produced US$799k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. It seems likely that the business is content with its current spending, as the cash burn rate stayed steady over the last twelve months. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Yield10 Bioscience Raise Cash?

Since its cash burn is increasing (albeit only slightly), Yield10 Bioscience shareholders should still be mindful of the possibility it will require more 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.

Yield10 Bioscience has a market capitalisation of US$51m and burnt through US$8.7m last year, which is 17% 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.

Is Yield10 Bioscience's Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Yield10 Bioscience's cash burn relative to its market cap was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, Yield10 Bioscience has 5 warning signs (and 2 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.

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