We are confident that BRAIN Biotech (ETR:BNN) will put its money to good use

There is no doubt that you can make money by owning shares in unprofitable companies. For example, even though Amazon.com made losses for many years after it went public, if you had bought and held the shares since 1999, you would have made a fortune. Still, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.

So the natural question is BRAIN Biotech (ETR:BNN) shareholders are wondering whether they should be concerned about its cash burn rate. 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. Let’s start by examining the company’s liquidity relative to its cash burn.

Check out our latest analysis for BRAIN Biotech

You can calculate a company’s cash needs by dividing the amount of cash it has on hand by the rate at which it spends that cash. As of June 2024, BRAIN Biotech had cash of €13 million and no debt. Last year the company burned 5.0 million euros. This means that as of June 2024, the company had a cash reserve of approximately 2.6 years. This is fine as the company has a few years to develop its business. If we extrapolate recent cash burn trends, the cash runway would be significantly longer. You can see how cash levels have changed over time in the image below.

It was pretty positive to see that BRAIN Biotech reduced its cash burn by 54% over the last year. Sales also improved in the reporting period and rose by 2.9%. Taking into account the above factors, the company does not do badly when it comes to assessing how it is changing over time. While the past is always worth studying, it is the future that matters most. This is why it makes a lot of sense to take a look at our analysts’ forecasts for the company.

While BRAIN Biotech appears to be in a good position, we still think it’s worth considering how easy it might be to raise more money 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. Generally, a company sells new shares to raise cash and fuel growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to run the company for another year (at the same burn rate).

BRAIN Biotech’s cash burn of EUR 5.0 million corresponds to approximately 7.2% of the market capitalization of EUR 70 million. Considering that this is a rather small percentage, it would probably be very easy for the company to finance growth for another year by issuing some new shares to investors or even by taking out a loan.

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