UK markets closed
  • FTSE 100

    7,901.80
    +81.64 (+1.04%)
     
  • FTSE 250

    20,593.46
    -21.23 (-0.10%)
     
  • AIM

    889.79
    +1.03 (+0.12%)
     
  • GBP/EUR

    1.1163
    -0.0042 (-0.37%)
     
  • GBP/USD

    1.2056
    -0.0173 (-1.41%)
     
  • BTC-GBP

    19,350.44
    -180.61 (-0.92%)
     
  • CMC Crypto 200

    535.42
    -1.43 (-0.27%)
     
  • S&P 500

    4,136.48
    -43.28 (-1.04%)
     
  • DOW

    33,926.01
    -127.93 (-0.38%)
     
  • CRUDE OIL

    73.23
    -2.65 (-3.49%)
     
  • GOLD FUTURES

    1,877.70
    -53.10 (-2.75%)
     
  • NIKKEI 225

    27,509.46
    +107.41 (+0.39%)
     
  • HANG SENG

    21,660.47
    -297.89 (-1.36%)
     
  • DAX

    15,476.43
    -32.76 (-0.21%)
     
  • CAC 40

    7,233.94
    +67.67 (+0.94%)
     

Here's Why We're Watching Inhibikase Therapeutics' (NASDAQ:IKT) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Inhibikase Therapeutics (NASDAQ:IKT) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Inhibikase Therapeutics

How Long Is Inhibikase Therapeutics' 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. When Inhibikase Therapeutics last reported its balance sheet in June 2022, it had zero debt and cash worth US$32m. Looking at the last year, the company burnt through US$14m. That means it had a cash runway of about 2.2 years as of June 2022. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Inhibikase Therapeutics' Cash Burn Changing Over Time?

Whilst it's great to see that Inhibikase Therapeutics has already begun generating revenue from operations, last year it only produced US$383k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Over the last year its cash burn actually increased by a very significant 60%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. Inhibikase Therapeutics makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Inhibikase Therapeutics Raise More Cash Easily?

While Inhibikase Therapeutics does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Inhibikase Therapeutics has a market capitalisation of US$24m and burnt through US$14m last year, which is 60% of the company's market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

Is Inhibikase Therapeutics' Cash Burn A Worry?

On this analysis of Inhibikase Therapeutics' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Inhibikase Therapeutics (of which 2 don't sit too well with us!) you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email 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 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here