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We're Not Very Worried About Oncternal Therapeutics's (NASDAQ:ONCT) Cash Burn Rate

Simply Wall St

There's no doubt that money can be made by owning shares of unprofitable businesses. 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.

So, the natural question for Oncternal Therapeutics (NASDAQ:ONCT) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Oncternal Therapeutics

How Long Is Oncternal Therapeutics's 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. As at June 2019, Oncternal Therapeutics had cash of US$29m and no debt. In the last year, its cash burn was US$12m. So it had a cash runway of about 2.4 years from June 2019. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

NasdaqCM:ONCT Historical Debt, September 20th 2019
NasdaqCM:ONCT Historical Debt, September 20th 2019

How Well Is Oncternal Therapeutics Growing?

At first glance it's a bit worrying to see that Oncternal Therapeutics actually boosted its cash burn by 45%, year on year. At least the revenue was up 16% during the period, even if it wasn't up by much. Considering both these factors, we're not particularly excited by its growth profile. In reality, this article only makes a short study of the company's growth data. You can take a look at how Oncternal Therapeutics has developed its business over time by checking this visualization of its revenue and earnings history.

Can Oncternal Therapeutics Raise More Cash Easily?

While Oncternal Therapeutics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Oncternal Therapeutics's cash burn of US$12m is about 15% of its US$80m 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 Oncternal Therapeutics's Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Oncternal Therapeutics's cash runway was relatively promising. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. While we always like to monitor cash burn for early stage companies, qualitative factors such as the CEO pay can also shed light on the situation. Click here to see free what the Oncternal Therapeutics CEO is paid..

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)

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.