Acasti Pharma (CVE: ACST) is in a strong position to develop its activity
There is no doubt that money can be made by owning shares of unprofitable companies. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
In view of this risk, we thought to examine whether Acasti Pharma (CVE: ACST) shareholders should be concerned about its consumption of cash. In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. The first step is to compare its cash consumption with its cash reserves, to give us its âcash flow trackâ.
See our latest review for Acasti Pharma
How long is Acasti Pharma’s cash flow track?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. Acasti Pharma has such low debt that we are going to put it aside and focus on the US $ 58 million in cash it had in June 2021. In the past year, its cash consumption was US $ 14 million. US dollars. Therefore, as of June 2021, he had 4.2 years of cash flow. Notably, however, analysts believe Acasti Pharma will break even (in free cash flow) before that date. In this case, he may never reach the end of his cash trail. The image below shows how her cash balance has evolved over the past few years.
How does Acasti Pharma’s silver consumption change over time?
While it’s great to see Acasti Pharma has already started generating operating income, last year it only produced $ 196,000, so we don’t think it generates significant income. for the moment. 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. While it hardly gives a picture of imminent growth, the fact that it has reduced its cash consumption by 35% in the last year suggests a certain caution. If the past is always worth studying, it is the future that matters most. You might want to take a look at how the business is expected to grow over the next few years.
How easily can Acasti Pharma raise funds?
Even though it has recently reduced its consumption of cash, shareholders should still consider how easy it would be for Acasti Pharma to raise more cash in the future. 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 looking at one company’s cash consumption relative to its market capitalization, we get an idea of ââhow many shareholders would be diluted if the company needed to raise enough cash to cover another’s cash consumption. year.
Acasti Pharma’s US $ 14 million cash consumption represents approximately 14% of its US $ 94 million market capitalization. As a result, we venture to think that the company could raise more cash for growth without too many problems, albeit at the cost of some dilution.
How risky is Acasti Pharma’s cash flow situation?
As you can probably see by now, we’re not too worried about Acasti Pharma’s cash consumption. For example, we think his cash flow trail suggests the business is on the right track. Its cash burn relative to its market capitalization was not as good, but was still rather encouraging! It is clearly very positive to see that analysts are predicting the company will soon reach its breakeven point. After looking at a series of factors in this article, we are quite relaxed about its consumption of cash, as the company appears to be in a good position to continue funding its growth. Diving deeper, we spotted 4 warning signs for Acasti Pharma you need to be aware of this, and 2 of them cannot be ignored.
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