Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. By way of example, BeyondSpring (NASDAQ:BYSI) has seen its share price rise 115% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

In light of its strong share price run, we think now is a good time to investigate how risky BeyondSpring's cash burn is. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for BeyondSpring

Does BeyondSpring Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When BeyondSpring last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$14m. Importantly, its cash burn was US$17m over the trailing twelve months. That means it had a cash runway of around 10 months as of June 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

How Well Is BeyondSpring Growing?

We reckon the fact that BeyondSpring managed to shrink its cash burn by 26% over the last year is rather encouraging. On top of that, operating revenue was up 21%, making for a heartening combination On balance, we'd say the company is improving over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how BeyondSpring has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can BeyondSpring Raise Cash?

While BeyondSpring seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster 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. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of US$76m, BeyondSpring's US$17m in cash burn equates to about 22% of its market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is BeyondSpring's Cash Burn Situation?

On this analysis of BeyondSpring's cash burn, we think its revenue growth was reassuring, while its cash runway has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Separately, we looked at different risks affecting the company and spotted 4 warning signs for BeyondSpring (of which 2 make us uncomfortable!) you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.