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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
NYSEMKT:MTNB) shareholders is whether they should be concerned by its rate of cash burn. 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. First, we’ll determine its cash runway by comparing its cash burn with its cash reserves.” data-reactid=”29″ type=”text”>So, the natural question for Matinas BioPharma Holdings (NYSEMKT:MTNB) shareholders is whether they should be concerned by its rate of cash burn. 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. First, we’ll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for Matinas BioPharma Holdings ” data-reactid=”30″ type=”text”> See our latest analysis for Matinas BioPharma Holdings
How Long Is Matinas BioPharma Holdings’ 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 June 2020, Matinas BioPharma Holdings had US$68m in cash, and was debt-free. Looking at the last year, the company burnt through US$17m. Therefore, from June 2020 it had 4.0 years of cash runway. Notably, however, analysts think that Matinas BioPharma Holdings will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Is Matinas BioPharma Holdings’ Cash Burn Changing Over Time?
how much the company is expected to grow in the next few years.” data-reactid=”50″ type=”text”>Because Matinas BioPharma Holdings isn’t currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by a very significant 54%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. 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 Matinas BioPharma Holdings To Raise More Cash For Growth?
Given its cash burn trajectory, Matinas BioPharma Holdings shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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.
Matinas BioPharma Holdings’ cash burn of US$17m is about 11% of its US$157m market capitalisation. 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 Matinas BioPharma Holdings’ Cash Burn A Worry?
3 warning signs for Matinas BioPharma Holdings (1 is potentially serious!) that you should be aware of before investing here.” data-reactid=”55″ type=”text”>As you can probably tell by now, we’re not too worried about Matinas BioPharma Holdings’ cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. One real positive is that analysts are forecasting that the company will reach breakeven. After taking into account the various metrics mentioned in this report, we’re pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Matinas BioPharma Holdings (1 is potentially serious!) that you should be aware of before investing here.