Assessing Longboard Prescription Drugs’ Cash Burn and Financial Health. The world of investing is no stranger to companies that operate at a loss, especially in industries like biotech and mining exploration, where years of losses can precede a breakthrough discovery. However, the stark reality is that many loss-making companies eventually deplete their cash reserves and face the risk of bankruptcy.
In this article, we delve into Longboard Prescription Drugs (NASDAQ: LBPH) to examine whether shareholders should be concerned about the company’s cash burn, defined as the annual amount of cash it spends to fuel its growth, often referred to as negative free cash flow. Our aim is to gauge the company’s financial runway by comparing its cash burn to its cash reserves.
Longboard Prescription Drugs’ Financial Position
Longboard Prescription Drugs had approximately US$87 million in cash and no debt as of June 2022. Over the past year, the company burnt through US$30 million. This implies a cash runway of approximately 2.9 years as of June 2022, providing the company with a substantial timeframe to advance its business. The chart below illustrates the changes in the company’s cash holdings over time.
How Is Longboard Prescription Drugs’ Cash Burn Evolving?
As of now, Longboard Prescription Drugs hasn’t reported any revenue over the last year, indicating that it is still in its early stages of development. While revenue is not a factor in assessing its growth, monitoring the trajectory of cash burn over time is essential. In the past year, the company’s cash burn increased significantly by 97%. While this uptick in spending likely aligns with its growth objectives, if this trend persists, the company’s cash runway could diminish rapidly. It is crucial to emphasize that while historical data is informative, the future outlook is of paramount importance. For a more comprehensive assessment, it is advisable to explore analyst forecasts for the company.
NasdaqGM: LBPH Debt to Fairness Historical past September tenth, 2022
Evaluating Longboard Prescription Drugs’ Ability to Raise Additional Capital
Although Longboard Prescription Drugs currently boasts a solid cash runway, its cash burn trend may lead shareholders to contemplate when the company might need to secure additional funding. Issuing new shares or taking on debt are common methods for publicly listed companies to raise capital for their operations. Publicly traded companies have the advantage of selling shares to investors, thus generating funds for growth. By comparing the company’s annual cash burn to its total market capitalization, we can estimate the number of shares it may need to issue to sustain its operations for another year at the current burn rate.
Longboard Prescription Drugs holds a market capitalization of US$79 million and burned through US$30 million in the last year, representing 38% of the company’s market value. This indicates a noteworthy cash burn, implying that if the company had to issue shares to cover another year’s operations, shareholders might face significant dilution.
Should Investors Worry About Longboard Prescription Drugs’ Cash Burn?
In our evaluation of Longboard Prescription Drugs’ cash burn, the company’s cash runway appears reassuring, but the accelerating cash burn rate raises some concerns. While we, as investors, typically approach cash-burning companies with a degree of caution, the metrics discussed in this article provide a reasonably optimistic outlook for Longboard Prescription Drugs. However, it’s essential to note that investing in such companies carries inherent risks. Furthermore, we conducted an in-depth analysis and identified six warning signs for Longboard Prescription Drugs, two of which may not sit well with potential investors. It’s advisable to be aware of these factors before considering an investment in the company.
In summary, Longboard Prescription Drugs may not be the ideal stock for all investors. You might want to explore a collection of companies with high returns on equity or a list of stocks that insiders are buying. If you have any feedback or concerns regarding this article, feel free to reach out to us directly or email the editorial team at [email protected].
Disclaimer: This article by Simply Wall St is intended for general informational purposes. Our commentary is based on historical data and analyst forecasts, employing an unbiased methodology. It is not intended to provide financial advice or constitute a recommendation to buy or sell any stock, and it does not consider individual financial situations or objectives. We aim to deliver long-term, data-driven analysis. Please note that our analysis may not incorporate the latest company announcements or qualitative information that could impact stock prices. Simply Wall St has no positions in any of the mentioned stocks.
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