We're Not Very Worried About Herantis Pharma Oyj's (HEL:HRTIS) Cash Burn Rate
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. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Herantis Pharma Oyj (HEL:HRTIS) shareholders be worried about its cash burn? 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. Let's start with an examination of the business' cash, relative to its cash burn.
How Long Is Herantis Pharma Oyj's Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. Herantis Pharma Oyj has such a small amount of debt that we'll set it aside, and focus on the €3.5m in cash it held at June 2026. Importantly, its cash burn was €6.0m over the trailing twelve months. So it had a cash runway of approximately 7 months from June 2026. Notably, however, the one analyst we see covering the stock thinks that Herantis Pharma Oyj will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
View our latest analysis for Herantis Pharma Oyj
How Is Herantis Pharma Oyj's Cash Burn Changing Over Time?
Because Herantis Pharma Oyj isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. It's possible that the 12% reduction in cash burn over the last year is evidence of management tightening their belts as cash reserves deplete. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Herantis Pharma Oyj Raise Cash?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Herantis Pharma Oyj to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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 €41m, Herantis Pharma Oyj's €6.0m in cash burn equates to about 15% of its market value. 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.
So, Should We Worry About Herantis Pharma Oyj's Cash Burn?
Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Herantis Pharma Oyj's cash burn relative to its market cap was relatively promising. There's no doubt that shareholders can take a lot of heart from the fact that at least one analyst is forecasting it will reach breakeven before too long. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 7 warning signs for Herantis Pharma Oyj you should be aware of, and 5 of them make us uncomfortable.
Of course Herantis Pharma Oyj 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 with high insider ownership.
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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.