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It’s easy to see why investors are attracted to unprofitable companies. For example, his software-as-a-service business Salesforce.com lost money for years while recurring revenue grew, but if you’ve owned the stock since 2005, you’re sure would have worked very well. But while the successes are well known, investors should not ignore the large number of unprofitable companies that burn through all their cash and go bankrupt.
So the obvious question is, medigene (ETR:MDG1) shareholders are debating whether they should be concerned about its cash burn rate. This report examines the company’s negative free cash flow for the year. We will refer to this as “cash burn” from now on. First, we compare its cash burn to its cash reserves to calculate its cash runway.
Check out our latest analysis for Medigene.
Does Medigene have long-term funding potential?
Cash runway is defined as the time it would take for a company to run out of cash if it continued to spend at its current cash burn rate. As of June 2023, Medigene had €25 million in cash and was debt-free. Last year’s cash burn was €15 million. This means it had a cash runway of approximately 20 months as of June 2023. This isn’t too bad, but unless cash burn significantly reduces, it’s safe to say that the end of the cash runway is in sight. You can see how its cash holdings have changed over time, as shown below.
Is Medigene’s revenue increasing?
Given that Medigene actually achieved positive free cash flow last year, we’ll focus on operating revenue this year to get an idea of the trajectory of the business, before burning through cash. The harsh reality for shareholders is that operating revenue fell 71% in the last twelve months. This is not desirable for cash-burning companies. However, it is clear that the key factor is whether the company will grow its business going forward. For this reason, it makes a lot of sense to see what analysts are predicting for the company.
How difficult will it be for Medigen to raise more capital for growth?
With revenue growth trending in the wrong direction, Medigene shareholders may want to think ahead about when the company will need to raise more cash. Companies can raise capital through debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn compared to its market capitalization, insight into how much shareholders will be diluted if the company needs to raise enough cash to cover another year’s cash burn. It can be obtained.
The company’s market capitalization is 67 million euros, so Medigene’s cash burn of 15 million euros represents about 22% of its market value. This is not insignificant; if the company had to sell enough shares at its current share price to fund next year’s growth, it would likely witness significant and costly dilution. It will be.
How dangerous is Medigene’s cash burn situation?
Although the decline in revenue makes us a little concerned, we have to mention that we thought Medigene’s funding prospects were relatively promising. While we don’t think cash burn is particularly problematic, shareholders should monitor how cash burn changes over time after considering the various factors in this article. That’s what I think. On a different note, we conducted a thorough investigation and identified the following: 4 Warning Signs for Medigene (1 is important!) You should be careful before investing here.
of course Medigene may not be the best stock to buy.So you might want to see this free A collection of companies with a high return on equity, or a list of stocks that insiders are buying.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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