Just because a business isn’t making money doesn’t mean the stock will go down. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
In view of this risk, we thought to examine whether Achilles Therapeutics (NASDAQ: ACHL) Shareholders should be concerned about its consumption of cash. For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). The first step is to compare its cash consumption with its cash reserves, to give us its âcash flow trackâ.
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How long is Achilles Therapeutics’ cash flow track?
A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. When Achilles Therapeutics last released its balance sheet in September 2021, it had no debt and $ 282 million in cash. In the past year, its cash consumption amounted to US $ 66 million. Therefore, as of September 2021, he had 4.3 years of cash flow. There is no doubt that this is a long and reassuring trail. The image below shows how his cash balance has evolved over the past few years.
How does Achilles Therapeutics’ silver consumption change over time?
Achilles Therapeutics has not recorded any sales over the past year, indicating that it is a start-up company that continues to expand its business. Nonetheless, we can still examine its cash consumption trajectory as part of our assessment of its cash consumption situation. In fact, it has sharply increased its spending over the past year, increasing cash consumption by 129%. With spending growing so rapidly, shareholders are hoping the money is being spent wisely. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
How difficult would it be for Achilles Therapeutics to raise more money for growth?
Given its cash-consuming trajectory, Achilles Therapeutics shareholders may want to consider how easily it could raise more cash, despite its strong liquidity trail. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By looking at a company’s cash consumption relative to its market capitalization, we get an idea of ââhow many shareholders would be diluted if the company needed to raise enough cash to cover a company’s cash consumption. other year.
Achilles Therapeutics’ cash consumption of US $ 66 million represents approximately 29% of its market capitalization of US $ 226 million. That’s not insignificant, and if the company were to sell enough stock to fund another year’s growth at the current share price, you’d likely see some pretty expensive dilution.
How risky is Achilles Therapeutics’ money-consuming situation?
On this analysis of Achilles Therapeutics’ cash burn, we think its cash trail was reassuring, while its growing cash burn worries us a little. Businesses that burn money are always on the riskier side of things, but after looking at all the factors discussed in this short article, we aren’t too concerned about its rate of cash consumption. By diving deeper, we spotted 4 warning signs for Achilles Therapeutics you need to be aware, and 2 of them are important.
Sure Achilles Therapeutics may not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.