Yahoo Finance Here's Why We're Watching Titan Pharmaceuticals' (NASDAQ:TTNP) 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for Titan Pharmaceuticals (NASDAQ:TTNP) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for Titan Pharmaceuticals
Does Titan Pharmaceuticals Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Titan Pharmaceuticals last reported its balance sheet in March 2022, it had zero debt and cash worth US$8.1m. Looking at the last year, the company burnt through US$8.3m. That means it had a cash runway of around 12 months as of March 2022. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.
How Well Is Titan Pharmaceuticals Growing?
We reckon the fact that Titan Pharmaceuticals managed to shrink its cash burn by 45% over the last year is rather encouraging. In contrast, however, operating revenue tanked 76% during the period. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can Titan Pharmaceuticals Raise Cash?
Given Titan Pharmaceuticals' revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving 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. 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).
Titan Pharmaceuticals' cash burn of US$8.3m is about 41% of its US$20m market capitalisation. 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.
How Risky Is Titan Pharmaceuticals' Cash Burn Situation?
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Titan Pharmaceuticals' cash burn reduction was relatively promising. Summing up, we think the Titan Pharmaceuticals' cash burn is a risk, based on the factors we mentioned in this article. On another note, Titan Pharmaceuticals has 6 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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.
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