Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
NASDAQ:EDIT) 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.
Check out our latest analysis for Editas Medicine
How Long Is Editas Medicine’s Cash Runway?
A company’s cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In December 2019, Editas Medicine had US$457m in cash, and was debt-free. Looking at the last year, the company burnt through US$47m. That means it had a cash runway of about 9.8 years as of December 2019. Even though this is but one measure of the company’s cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.
How Well Is Editas Medicine Growing?
how much the company is expected to grow in the next few years.
How Easily Can Editas Medicine Raise Cash?
Even though it seems like Editas Medicine is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.
Editas Medicine has a market capitalisation of US$1.2b and burnt through US$47m last year, which is 3.9% of the company’s market value. That’s a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
Is Editas Medicine’s Cash Burn A Worry?
4 warning signs for Editas Medicine (of which 1 shouldn’t be ignored!) you should know about.
list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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