We believe Graphite Bio (NASDAQ: GRPH) can afford to drive business growth
Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, although the software as a service company Salesforce.com lost money for years as it increased its recurring revenue, if you had owned stocks since 2005, you would have done very well. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.
So the natural question for Bio graphite (NASDAQ: GRPH) is whether they should be concerned about its rate of cash consumption. In this report, we will consider the company’s annual negative free cash flow, which we now call âcash burnâ. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
See our latest analysis for Graphite Bio
How long is Graphite Bio’s cash flow track?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. When Graphite Bio last published its balance sheet in June 2021, it had no debt and cash worth $ 382 million. Looking at last year, the company burned $ 32 million. It therefore had a very long cash flow trail of several years starting in June 2021. Even though this is only a measure of the company’s cash consumption, the idea of ââsuch a long cash trail warms our stomachs in a heartwarming way. You can see how her cash balance has changed over time in the image below.
How does the silver consumption of Graphite Bio change over time?
Since Graphite Bio does not currently generate any revenue, we consider it to be a start-up company. Nonetheless, we can still examine its cash consumption trajectory as part of our assessment of its cash consumption situation. Remarkably, it has actually increased its cash consumption by 524% over the past year. We certainly hope for the sake of the shareholders that the money is well spent, because this kind of spending increase always makes us nervous. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
Can Graphite Bio easily raise more money?
Given its cash-consuming trajectory, Graphite Bio 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. Many companies end up issuing new shares to fund their future growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ââhow many new shares a company would need to issue to fund its one-year operations.
Since it has a market cap of $ 968 million, Graphite Bio’s $ 32 million of cash consumption is equivalent to about 3.3% of its 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.
So, should we be worried about Graphite Bio’s cash burn?
It may already be obvious to you that we are relatively comfortable with the way Graphite Bio burns its money. For example, we think his cash flow trail suggests the business is on the right track. While we have to admit that its growing consumption of cash is a bit of a concern, the other factors mentioned in this article provide great comfort when it comes to consuming cash. Looking at all of the metrics in this article, together, we’re not worried about its rate of cash consumption; the business appears to be well above its medium-term spending needs. Diving deeper, we spotted 5 warning signs for Graphite Bio you should be aware, and 2 of them don’t suit us very well.
Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analysts’ forecasts)
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