We can readily understand why investors are attracted to unprofitable companies. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Autolus Therapeutics (NASDAQ:AUTL) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
When Might Autolus Therapeutics Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Autolus Therapeutics last reported its balance sheet in March 2020, it had zero debt and cash worth US$243m. Importantly, its cash burn was US$120m over the trailing twelve months. That means it had a cash runway of about 2.0 years as of March 2020. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.
How Well Is Autolus Therapeutics Growing?
At first glance it's a bit worrying to see that Autolus Therapeutics actually boosted its cash burn by 2.0%, year on year. It's even more troubling to see that operating revenue fell 53% during the period. Considering both these metrics, we're a little concerned about how the company is developing. 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 Autolus Therapeutics To Raise More Cash For Growth?
Even though it seems like Autolus Therapeutics is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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 to fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Autolus Therapeutics's cash burn of US$120m is about 23% of its US$527m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.
Is Autolus Therapeutics's Cash Burn A Worry?
On this analysis of Autolus Therapeutics's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Autolus Therapeutics (of which 1 shouldn't be ignored!) you should know about.
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