It is easy to understand why investors are attracted to unprofitable companies. For example, although Amazon.com suffered losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
So should Acer Therapeutic (NASDAQ: ACER) Are shareholders worried about its consumption of cash? For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). Let’s start with a review of the company’s cash flow, relative to its cash consumption.
How long is Acer Therapeutics’ cash flow?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. When Acer Therapeutics last released its balance sheet in September 2021, it had no debt and $ 14 million in cash. Importantly, its cash consumption amounted to US $ 2.6 million over the past twelve months. Therefore, as of September 2021, he had 5.4 years of cash flow. While this is only a measure of its cash-consuming situation, it certainly gives us the impression that holders have nothing to fear. Pictured below, you can see how his cash holdings have changed over time.
NasdaqCM: ACER History of debt to equity January 7, 2022
How does Acer Therapeutics’ silver consumption change over time?
In our opinion, Acer Therapeutics is not yet producing significant operating revenues, having only brought in US $ 900,000 in the past twelve months. Therefore, for the purposes of this analysis, we will focus on monitoring cash consumption. The 85% reduction in its cash consumption over the past twelve months may be good for protecting the balance sheet, but it hardly indicates imminent growth. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
Can Acer Therapeutics Easily Raise More Money?
While we are reassured by the recent obvious reduction in our analysis of Acer Therapeutics’ cash consumption, it is still worth considering how easily the company could raise more funds if it wanted to accelerate spending to boost growth. growth. The issuance of new shares or debt are the most common ways for a listed company to raise more money for its activity. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ââhow many new shares a company would need to issue to fund its one-year operations.
Acer Therapeutics’ cash consumption of US $ 2.6 million represents approximately 8.1% of its market capitalization of US $ 32 million. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.
How risky is Acer Therapeutics’ money-consuming situation?
It may already be obvious to you that we are relatively comfortable with how Acer Therapeutics burns its money. For example, we think his cash flow trail suggests the business is on the right track. And even its consumption of cash relative to its market cap was very encouraging. After looking at a series of factors in this article, we’re pretty relaxed about its consumption of cash, as the company appears to be in a good position to continue funding its growth. Separately, we examined different risks affecting the business and identified 4 warning signs for Acer Therapeutics (1 of which is of concern!) that you should know about.
If you’d rather discover another business with better fundamentals, don’t miss this free list of interesting companies that have HIGH ROE and low debt or this list of stocks that are all expected to grow.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.