Even if a business loses money, shareholders have the potential to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before they succeed with new processing methods or mineral discoveries. But the harsh reality is that many loss-making companies burn through all their cash and go bankrupt.
so it should Dice Therapy (NASDAQ: DICE) Shareholders worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount a company uses each year to fund its growth. Let’s start by examining a business’ cash, relative to its cash burn.
Check out our latest analysis for DICE Therapeutics
How long is DICE Therapeutics’ cash runway?
A company’s cash runway is calculated by dividing its cash reserves by its cash burn. When DICE Therapeutics last reported its balance sheet in June 2022, it had zero debt and cash and was valued at $282 million. Last year, its cash burn was $56 million. So it has a cash runway of about 5.0 years from June 2022. While this is just one measure of its cash burn, it does give us the impression that holders have nothing to worry about. The chart below shows how its cash balance has changed over the past few years.
How has DICE Therapeutics’ cash burn changed over time?
Since DICE Therapeutics does not currently generate revenue, we consider it an early stage business. Still, we can examine its cash burn trajectory as part of our assessment of its cash burn. The skyrocketing cash burned 107% year-on-year, which undoubtedly tested our nerves. With spending growing so fast, shareholders will want the money to be used judiciously. Clearly, however, the key factor is whether the company will grow its business in the future. So, you might want to see how much the company is expected to grow over the next few years.
How hard is it for DICE Therapeutics to raise more cash for growth?
While DICE Therapeutics does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead of time when the company might need to raise more cash. Companies can raise capital through debt or equity. One of the main advantages of public company holdings is the ability to sell shares to investors to raise cash and fund growth. By looking at a company’s cash burn relative to its market value, we can gain insight into how much shareholders will be diluted if the company needs to raise enough cash to cover another year’s cash burn.
DICE Therapeutics, valued at $865 million, burned $56 million last year, or 6.5% of the company’s market value. That’s a low percentage, so we think the company will be able to raise more cash to support growth with a little dilution or even simply borrow some money.
So, should we be worried about DICE Therapeutics’ cash burn?
As you probably know by now, we’re not too concerned about DICE Therapeutics’ cash burn. In particular, we think its cash runway stands out, proving that the company is doing a good job on spending. While we must admit that its increasing cash burn is a bit concerning, the other factors mentioned in this article offer great comfort in terms of cash burn. After taking into account the various metrics mentioned in this report, we are very pleased with the way the company is spending its cash as it appears to be on track to meet its needs in the medium term.Additionally, we looked at the different risks affecting companies and found 3 Warning Signs of DICE Therapeutics (2 of them should not be ignored!) You should know.
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This article by Simply Wall St is general in nature. We provide commentary based solely on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It does not constitute advice to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to bring you long-term focused analytics driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Wall Street has no positions in any of the stocks mentioned.
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