Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, although the software as a service company Salesforce.com lost money for years as it increased its recurring revenue, if you had owned stocks since 2005, you would have done very well. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
So should Therapeutic Lyra (NASDAQ: LYRA) Are shareholders worried about its consumption of cash? In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Check out our latest review for Lyra Therapeutics
When could Lyra Therapeutics run out of money?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of June 2021, Lyra Therapeutics had US $ 69 million in cash and no debt. Looking at last year, the company burned $ 17 million. Therefore, as of June 2021, he had 4.0 years of cash flow. There is no doubt that this is a reassuring long trail. The image below shows how her cash balance has evolved over the past few years.
How does Lyra Therapeutics’ silver consumption change over time?
Lyra Therapeutics has not recorded any revenue in the past year, indicating that it is a start-up company that continues to grow its business. So while we can’t look at sales to understand growth, we can look at changes in cash consumption to understand changes in expenses over time. With cash usage down 11%, it appears management believes the company is spending enough to move its business plans forward at an appropriate pace. If the past is always worth studying, it is the future that matters most. You might want to take a look at how the business is expected to grow over the next few years.
Can Lyra Therapeutics Easily Raise More Money?
While Lyra Therapeutics shows a sharp reduction in its consumption of cash, it’s still worth considering how easily it could raise more cash, if only to fuel faster growth. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. We can compare a company’s cash consumption to its market capitalization to get an idea of how many new shares a company would need to issue to fund its one-year operations.
Since it has a market capitalization of US $ 93 million, Lyra Therapeutics’ US $ 17 million of cash consumption is equivalent to approximately 19% of its market value. As a result, we venture to think that the company could raise more cash for growth without too many problems, albeit at the cost of some dilution.
How risky is Lyra Therapeutics’ money-consuming situation?
As you can probably see by now, we’re not too worried about Lyra Therapeutics’ money consumption. In particular, we believe that its cash flow track is proof that the company has good control over its spending. Based on this analysis, its consumption of cash relative to its market cap was its weakest characteristic, but that does not concern us. Considering all the factors covered in this article, we are not too concerned about the company’s cash consumption, although we believe shareholders should keep an eye on its development. On another note, Lyra Therapeutics has 4 warning signs (and 1 which is a little worrying) we think you should be aware of.
If you’d rather discover another business with better fundamentals, don’t miss this free list of interesting companies that have HIGH ROE and low debt or this list of stocks that are all expected to grow.
If you decide to trade Lyra Therapeutics, use the cheapest platform * which is ranked # 1 overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account. Promoted
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.