We’re not very worried about ViroGates’ cash consumption rate (CPH: VIRO)


It is easy to understand why investors are attracted to unprofitable companies. For exemple, ViroGates (CPH: VIRO) has seen its share price rise 177% over the past year, delighting many shareholders. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.

In light of the sharp rise in its share price, we believe the time has come to consider how risky ViroGates’ cash consumption is. For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). First, we will determine its cash trail by comparing its cash consumption with its cash reserves.

Check out our latest review for ViroGates

How long is the ViroGates Cash Runway?

A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. When ViroGates last published its balance sheet in June 2021, it had no debt and was worth 21 million kr. In the past year, his cash consumption was SEK 21 million. This means it had a cash trail of around 12 months in June 2021. While that cash trail isn’t too much of a concern, sane holders would look into the distance and consider what would happen if the business were to fail. cash. The image below shows how her cash balance has evolved over the past few years.

CPSE: VIRO History of debt to equity September 19, 2021

How does ViroGates money consumption change over time?

In our opinion, ViroGates is not yet producing significant operating income, as it has only brought in 8.0 million Kroner in the last twelve months. As a result, we think it’s a bit early to focus on revenue growth, so we’ll limit ourselves to looking at how cash consumption has changed over time. Over the past year, its cash consumption has actually increased by 12%, which suggests that management is increasing its investments in future growth, but not too quickly. However, the true cash flow trail for the business will therefore be shorter than suggested above if expenses continue to increase. In reality, this article does only a brief study of company growth data. This historical revenue growth chart shows how ViroGates is growing its business over time.

How easily can ViroGates raise funds?

Given its cash-consuming trajectory, ViroGates shareholders may want to consider how easily it could raise more cash, despite its strong liquidity track. 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. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the business running for another year (at the same burn rate).

ViroGates has a market capitalization of SEK 545 million and reached SEK 21 million last year, or 3.8% of the company’s market value. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.

How risky is ViroGates’ money consuming situation?

On this analysis of ViroGates’ cash burn, we think that its cash burn in relation to its market capitalization was reassuring, while its growing cash burn worries us a little. While we’re the kind of investors who are always a bit concerned about the risks of money-burning companies, the metrics we’ve discussed in this article leave us relatively comfortable with ViroGates’ situation. On another note, ViroGates has 5 warning signs (and 2 which are a bit rude) we think you should be aware of.

If you prefer to consult another company 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.

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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 documents. Simply Wall St has no position in the mentioned stocks.
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