Yahoo Finance We Think ORIC Pharmaceuticals (NASDAQ:ORIC) Can Afford To Drive Business Growth
There's no doubt that money can be made by owning shares of unprofitable businesses. 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, the natural question for ORIC Pharmaceuticals (NASDAQ:ORIC) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for ORIC Pharmaceuticals
How Long Is ORIC Pharmaceuticals' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When ORIC Pharmaceuticals last reported its March 2024 balance sheet in May 2024, it had zero debt and cash worth US$317m. Importantly, its cash burn was US$96m over the trailing twelve months. Therefore, from March 2024 it had 3.3 years of cash runway. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
How Is ORIC Pharmaceuticals' Cash Burn Changing Over Time?
ORIC Pharmaceuticals didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. With the cash burn rate up 28% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can ORIC Pharmaceuticals Raise Cash?
Given its cash burn trajectory, ORIC Pharmaceuticals shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
ORIC Pharmaceuticals' cash burn of US$96m is about 15% of its US$648m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
How Risky Is ORIC Pharmaceuticals' Cash Burn Situation?
As you can probably tell by now, we're not too worried about ORIC Pharmaceuticals' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking a deeper dive, we've spotted 4 warning signs for ORIC Pharmaceuticals you should be aware of, and 2 of them can't be ignored.
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.
