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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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for Oxford Nanopore Technologies (LON:ONT) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Oxford Nanopore Technologies
Does Oxford Nanopore Technologies 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 2022, Oxford Nanopore Technologies had UK£357m in cash, and was debt-free. Looking at the last year, the company burnt through UK£92m. That means it had a cash runway of about 3.9 years as of December 2022. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.
How Well Is Oxford Nanopore Technologies Growing?
At first glance it's a bit worrying to see that Oxford Nanopore Technologies actually boosted its cash burn by 9.0%, year on year. The silver lining is that revenue was up 49%, showing the business is growing at the top line. It seems to be growing nicely. 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 Hard Would It Be For Oxford Nanopore Technologies To Raise More Cash For Growth?
While Oxford Nanopore Technologies seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. 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.