Just because a company isn’t making money doesn’t mean the stock will fall. For example, although Amazon.com was loss-making for many years after it went public, if you had bought and held the stock since 1999, you would have made a fortune. The harsh reality, however, is that a great many loss-making companies burn through all their cash and go bankrupt.

This should also aTyr Pharma (NASDAQ:ATYR) shareholders are concerned about its cash burn? In this report, we will look at the company’s annual negative free cash flow, which will be referred to as its “cash burn”. The first step is to compare the cash burn to its cash reserves to give us its “cash runway”.

Check out our latest analysis for aTyr Pharma

When could aTyr Pharma run out of money?

You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When aTyr Pharma released its March 2024 balance sheet in May 2024, it had no debt and cash of US$84m. Over the last year, its cash burn was US$58m. This means it had a cash runway of about 17 months into March 2024. That’s not too bad, but it’s fair to say that unless cash burn reduces drastically, the end of the cash runway is in sight. You can see how cash levels have changed over time in the image below.

How does aTyr Pharma’s cash burn change over time?

In our view, aTyr Pharma is not yet generating significant operating income, as it only reported US$588k over the last twelve months. Therefore, for this analysis, we will focus on the cash burn trend. In fact, over the last year, cash burn has increased by a remarkable 65%. Often, increased cash burn simply means that a company is accelerating its business development, but it is always important to be aware that this will shrink the cash runway. However, the key factor is clearly whether the company will grow its business in the future, so you should take a look at how much the company is expected to grow over the next few years.

How difficult would it be for aTyr Pharma to raise more money for growth?

While aTyr Pharma has a solid cash reserve, the cash burn trend could cause some shareholders to worry about when the company may need to raise more cash. Issuing new shares or taking on debt are the most common methods for a publicly traded company to raise more money for its business. Many companies ultimately issue new shares to fund future growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into the dilution faced by shareholders if the company had to raise enough cash to cover another year’s cash burn.

aTyr Pharma’s $58 million cash buy represents about 48% of its $120 million market cap. That’s a large expense relative to the value of the entire company, so if it has to issue shares to fund further growth, it could significantly hurt shareholder returns (through significant dilution).

So should we be worried about aTyr Pharma’s cash burn?

While we are a little concerned about the cash burn relative to market cap, we must mention that we found aTyr Pharma’s cash runway to be relatively promising. Given the factors mentioned in this brief report, we think the cash burn is a little risky and are a little nervous about the stock. Upon closer inspection, we found the following: 3 warning signs for aTyr Pharma You should be aware of these, and one of them is worrying.

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