Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Imagion Biosystems (ASX:IBX) 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'. 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 Imagion Biosystems

How Long Is Imagion Biosystems' Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Imagion Biosystems last reported its balance sheet in June 2021, it had zero debt and cash worth AU$14m. Importantly, its cash burn was AU$4.0m over the trailing twelve months. So it had a cash runway of about 3.5 years from June 2021. 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. debt-equity-history-analysis

How Well Is Imagion Biosystems Growing?

Imagion Biosystems boosted investment sharply in the last year, with cash burn ramping by 68%. But the silver lining is that operating revenue increased by 29% in that time. On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Imagion Biosystems is building its business over time.

How Easily Can Imagion Biosystems Raise Cash?

There's no doubt Imagion Biosystems seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.



Since it has a market capitalisation of AU$75m, Imagion Biosystems' AU$4.0m in cash burn equates to about 5.4% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Imagion Biosystems' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Imagion Biosystems' cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Imagion Biosystems that potential shareholders should take into account before putting money into a stock.

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

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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