Werewolf Therapeutics (NASDAQ: HOWL) Well Positioned to Achieve Growth Plans
It is easy to understand why investors are attracted to unprofitable companies. 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. But while the successes are well known, investors should not ignore the myriad of unprofitable companies that simply burn all their money and collapse.
In view of this risk, we thought to examine whether Werewolf therapy (NASDAQ: HOWL) shareholders should be concerned about its consumption of cash. For the purposes of this article, cash consumption is the annual rate at which an unprofitable business spends money to finance its growth; its negative free cash flow. Let’s start with a review of the company’s cash flow, relative to its cash consumption.
See our latest review for Werewolf Therapeutics
When might Werewolf Therapeutics run out of money?
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 Werewolf Therapeutics last released its balance sheet in September 2021, it had no debt and $ 170 million in cash. Looking at last year, the company burned $ 36 million. This means he had a cash flow track of around 4.7 years as of September 2021. A track of this length gives the company the time and space it needs to grow its business. You can see how his cash balance has changed over time in the image below.
How does Werewolf Therapeutics’ silver consumption change over time?
Werewolf Therapeutics has not recorded any revenue over the past year, indicating that it is a start-up company that continues to grow its business. So while we can’t look at sales to understand growth, we can look at changes in cash consumption to understand changes in expenses over time. The skyrocketing money spent of up to 117% year over year certainly puts our nerves to the test. With spending growing so rapidly, shareholders are hoping the money is being spent wisely. While the past is always worth studying, it’s 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 Werewolf Therapeutics raise funds?
Given its cash-consuming trajectory, Werewolf Therapeutics shareholders may want to consider how easily it could raise more cash, despite its strong liquidity trail. The issuance of new shares or debt are the most common ways for a listed company to raise more money for its activity. Many companies end up issuing new shares to finance 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.
Werewolf Therapeutics’ cash consumption of US $ 36 million represents approximately 8.5% of its market capitalization of US $ 429 million. 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 Werewolf Therapeutics’ cash burn situation?
It may already be obvious to you that we are relatively comfortable with the way Werewolf Therapeutics burns its money. In particular, we believe that its cash flow track stands out as proof that the company has good control over its spending. Although we have to admit that its increase in money consumption is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to money consumption. Considering all of the factors discussed in this article, we are not too concerned about the company’s cash consumption, although we believe shareholders should keep an eye on its development. On another note, we conducted a thorough investigation of the company and identified 2 warning signs for Werewolf Therapeutics (1 is significant!) That you should know before investing here.
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