We can readily understand why investors are attracted to unprofitable companies. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Intra-Cellular Therapies (NASDAQ:ITCI) shareholders be worried about its cash burn? 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. First, we’ll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Intra-Cellular Therapies
How Long Is Intra-Cellular Therapies’ Cash Runway?
You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Intra-Cellular Therapies last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$1.0b. In the last year, its cash burn was US$61m. That means it had a cash runway of very many years as of June 2024. Importantly, though, analysts think that Intra-Cellular Therapies will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.
How Well Is Intra-Cellular Therapies Growing?
Intra-Cellular Therapies managed to reduce its cash burn by 68% over the last twelve months, which suggests it’s on the right flight path. And there’s no doubt that the inspiriting revenue growth of 54% assisted in that improvement. Considering these factors, we’re fairly impressed by its growth trajectory. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Intra-Cellular Therapies Raise More Cash Easily?
While Intra-Cellular Therapies 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. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
Intra-Cellular Therapies has a market capitalisation of US$8.0b and burnt through US$61m last year, which is 0.8% of the company’s market value. So it could almost certainly just borrow a little to fund another year’s growth, or else easily raise the cash by issuing a few shares.
Is Intra-Cellular Therapies’ Cash Burn A Worry?
It may already be apparent to you that we’re relatively comfortable with the way Intra-Cellular Therapies is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. But it’s fair to say that its cash burn reduction was also very reassuring. It’s clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we’re not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. An in-depth examination of risks revealed 1 warning sign for Intra-Cellular Therapies that readers should think about before committing capital to this stock.
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)
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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.