Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Aurinia Pharmaceuticals (NASDAQ:AUPH) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Aurinia Pharmaceuticals

Does Aurinia Pharmaceuticals Have A Long 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. In December 2023, Aurinia Pharmaceuticals had US$350m in cash, and was debt-free. In the last year, its cash burn was US$34m. That means it had a cash runway of very many years as of December 2023. Importantly, though, analysts think that Aurinia Pharmaceuticals will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Aurinia Pharmaceuticals Growing?

Aurinia Pharmaceuticals managed to reduce its cash burn by 57% over the last twelve months, which suggests it's on the right flight path. Pleasingly, this was achieved with the help of a 31% boost to revenue. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Aurinia Pharmaceuticals To Raise More Cash For Growth?

While Aurinia Pharmaceuticals seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Aurinia Pharmaceuticals' cash burn of US$34m is about 4.3% of its US$788m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is Aurinia Pharmaceuticals' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Aurinia Pharmaceuticals' cash burn. For example, we think its cash runway suggests that the company is on a good path. And even its revenue growth was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 1 warning sign for Aurinia Pharmaceuticals that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.