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. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Exscientia (NASDAQ:EXAI) shareholders is whether they should be concerned by its rate of 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.

See our latest analysis for Exscientia

How Long Is Exscientia's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2021, Exscientia had cash of UK£562m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was UK£17m. So it had a very long cash runway of many years from December 2021. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

How Well Is Exscientia Growing?

Happily, Exscientia is travelling in the right direction when it comes to its cash burn, which is down 58% over the last year. And it is also great to see that the revenue is up a stonking 124% in the same time period. Considering these factors, we're fairly impressed by its growth trajectory. While the past is always worth studying, it is the future that matters most of all. 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 Exscientia To Raise More Cash For Growth?

While Exscientia seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Exscientia's cash burn of UK£17m is about 1.5% of its UK£1.1b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Exscientia's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Exscientia's cash burn. For example, we think its revenue growth suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. 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. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Exscientia (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course Exscientia may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.