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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
NASDAQ:COCP) shareholders should 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.” data-reactid=”29″>Given this risk, we thought we’d take a look at whether Cocrystal Pharma (NASDAQ:COCP) shareholders should 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.
View our latest analysis for Cocrystal Pharma ” data-reactid=”30″>View our latest analysis for Cocrystal Pharma
How Long Is Cocrystal Pharma’s Cash Runway?
You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Cocrystal Pharma last reported its balance sheet in June 2020, it had zero debt and cash worth US$19m. Importantly, its cash burn was US$7.3m over the trailing twelve months. So it had a cash runway of about 2.7 years from June 2020. Arguably, that’s a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Cocrystal Pharma Growing?
our analyst forecasts for the company.” data-reactid=”50″>Notably, Cocrystal Pharma actually ramped up its cash burn very hard and fast in the last year, by 129%, signifying heavy investment in the business. And that is all the more of a concern in light of the fact that operating revenue was actually down by 66% in the last year, as the company no doubt scrambles to change its fortunes. 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. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Cocrystal Pharma Raise More Cash Easily?
While Cocrystal Pharma 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company’s cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year’s operations.
Cocrystal Pharma has a market capitalisation of US$102m and burnt through US$7.3m last year, which is 7.2% of the company’s market value. That’s a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
Is Cocrystal Pharma’s Cash Burn A Worry?
4 warning signs for Cocrystal Pharma you should be aware of, and 1 of them is a bit unpleasant.” data-reactid=”55″>On this analysis of Cocrystal Pharma’s cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. 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. Taking a deeper dive, we’ve spotted 4 warning signs for Cocrystal Pharma you should be aware of, and 1 of them is a bit unpleasant.
collection of companies boasting high return on equity, or this list of stocks that insiders are buying.” data-reactid=”60″>Of course Cocrystal Pharma 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.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>This article by Simply Wall St is general in nature. 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.