We're Keeping An Eye On Molecular Partners' (VTX:MOLN) Cash Burn Rate
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 software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Molecular Partners (VTX:MOLN) shareholders 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 Molecular Partners
How Long Is Molecular Partners' 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. When Molecular Partners last reported its balance sheet in September 2023, it had zero debt and cash worth CHF207m. Looking at the last year, the company burnt through CHF58m. Therefore, from September 2023 it had 3.5 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.
Is Molecular Partners' Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Molecular Partners actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. The bad news for shareholders is that operating revenue actually plummeted 95% in the last year, which is a real concern in our view. 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 Easily Can Molecular Partners Raise Cash?
Given its problematic fall in revenue, Molecular Partners shareholders should consider how the company could fund its growth, if it turns out it needs more cash. 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. 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).
Molecular Partners' cash burn of CHF58m is about 44% of its CHF131m market capitalisation. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).
How Risky Is Molecular Partners' Cash Burn Situation?
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Molecular Partners' cash runway was relatively promising. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Molecular Partners (1 is a bit concerning!) that you should be aware of before investing here.
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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.
