We're Not Worried About Adaptimmune Therapeutics' (NASDAQ:ADAP) Cash Burn
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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for Adaptimmune Therapeutics (NASDAQ:ADAP) 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'. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for Adaptimmune Therapeutics
When Might Adaptimmune Therapeutics Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Adaptimmune Therapeutics last reported its balance sheet in March 2022, it had zero debt and cash worth US$304m. Looking at the last year, the company burnt through US$12m. That means it had a cash runway of very many years as of March 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.
How Well Is Adaptimmune Therapeutics Growing?
Adaptimmune Therapeutics managed to reduce its cash burn by 90% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. Arguably, however, the revenue growth of 156% during the period was even more impressive. Considering these factors, we're fairly impressed by its growth trajectory. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Adaptimmune Therapeutics Raise More Cash Easily?
While Adaptimmune Therapeutics 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Adaptimmune Therapeutics has a market capitalisation of US$233m and burnt through US$12m last year, which is 5.0% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
Is Adaptimmune Therapeutics' Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Adaptimmune Therapeutics is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. And even its cash burn relative to its market cap was very encouraging. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. On another note, Adaptimmune Therapeutics has 3 warning signs (and 1 which is significant) we think you should know about.
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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.
