Advertisement
Australia markets open in 1 hour 9 minutes
  • ALL ORDS

    8,132.10
    +49.80 (+0.62%)
     
  • AUD/USD

    0.6670
    -0.0025 (-0.38%)
     
  • ASX 200

    7,863.70
    +49.30 (+0.63%)
     
  • OIL

    79.65
    -0.15 (-0.19%)
     
  • GOLD

    2,432.10
    -6.40 (-0.26%)
     
  • Bitcoin AUD

    104,431.70
    +4,964.33 (+4.99%)
     
  • CMC Crypto 200

    1,490.59
    +136.17 (+10.05%)
     

We're Interested To See How Aroa Biosurgery (ASX:ARX) Uses Its Cash Hoard To Grow

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Aroa Biosurgery (ASX:ARX) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Aroa Biosurgery

When Might Aroa Biosurgery Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2023, Aroa Biosurgery had cash of NZ$35m and no debt. Looking at the last year, the company burnt through NZ$15m. Therefore, from September 2023 it had 2.3 years of cash runway. Importantly, though, analysts think that Aroa Biosurgery will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

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

How Well Is Aroa Biosurgery Growing?

Aroa Biosurgery reduced its cash burn by 3.3% during the last year, which points to some degree of discipline. On top of that, operating revenue was up 29%, making for a heartening combination On balance, we'd say the company is improving over time. 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 Hard Would It Be For Aroa Biosurgery To Raise More Cash For Growth?

While Aroa Biosurgery seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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. 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.

ADVERTISEMENT

Since it has a market capitalisation of NZ$215m, Aroa Biosurgery's NZ$15m in cash burn equates to about 7.0% of its 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.

How Risky Is Aroa Biosurgery's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Aroa Biosurgery's cash burn. For example, we think its cash runway suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. One real positive is that analysts are forecasting that the company will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. While we always like to monitor cash burn for early stage companies, qualitative factors such as the CEO pay can also shed light on the situation. Click here to see free what the Aroa Biosurgery CEO is paid..

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)

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.