April 19, 2024


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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for ARS Pharmaceuticals (NASDAQ:SPRY) 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. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.

Check out our latest analysis for ARS Pharmaceuticals

How Long Is ARS Pharmaceuticals’ Cash Runway?

A company’s cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When ARS Pharmaceuticals last reported its September 2023 balance sheet in November 2023, it had zero debt and cash worth US$242m. Looking at the last year, the company burnt through US$63m. Therefore, from September 2023 it had 3.9 years of cash runway. 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.

NasdaqGM:SPRY Debt to Equity History March 18th 2024

How Is ARS Pharmaceuticals’ Cash Burn Changing Over Time?

In our view, ARS Pharmaceuticals doesn’t yet produce significant amounts of operating revenue, since it reported just US$30k in the last twelve months. Therefore, for the purposes of this analysis we’ll focus on how the cash burn is tracking. The skyrocketing cash burn up 151% year on year certainly tests our nerves. It’s fair to say that sort of rate of increase cannot be maintained for very long, without putting pressure on the balance sheet. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For ARS Pharmaceuticals To Raise More Cash For Growth?

Given its cash burn trajectory, ARS Pharmaceuticals shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.

ARS Pharmaceuticals’ cash burn of US$63m is about 7.1% of its US$879m market capitalisation. 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.

How Risky Is ARS Pharmaceuticals’ Cash Burn Situation?

It may already be apparent to you that we’re relatively comfortable with the way ARS Pharmaceuticals is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Considering all the factors discussed in this article, we’re not overly concerned about the company’s cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we’ve spotted 2 warning signs for ARS Pharmaceuticals you should be aware of, and 1 of them is a bit unpleasant.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

Valuation is complex, but we’re helping make it simple.

Find out whether ARS Pharmaceuticals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 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.



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