There's no doubt that money can be made by owning shares of unprofitable businesses. 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 should Bellerophon Therapeutics (NASDAQ:BLPH) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Bellerophon Therapeutics

When Might Bellerophon Therapeutics Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at March 2023, Bellerophon Therapeutics had cash of US$15m and no debt. Importantly, its cash burn was US$9.8m over the trailing twelve months. So it had a cash runway of approximately 19 months from March 2023. Importantly, analysts think that Bellerophon Therapeutics will reach cashflow breakeven in 2 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

How Is Bellerophon Therapeutics' Cash Burn Changing Over Time?

Whilst it's great to see that Bellerophon Therapeutics has already begun generating revenue from operations, last year it only produced US$5.6m, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 50% over the last year suggests some degree of prudence. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Bellerophon Therapeutics Raise Cash?

There's no doubt Bellerophon Therapeutics' rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. 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.

Bellerophon Therapeutics' cash burn of US$9.8m is about 13% of its US$74m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Bellerophon Therapeutics' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Bellerophon Therapeutics' cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. Its cash runway wasn't quite as good, but was still rather encouraging! Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, Bellerophon Therapeutics has 5 warning signs (and 2 which make us uncomfortable) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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.