We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Paradigm Biopharmaceuticals (ASX:PAR) shareholders be worried about its 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

Does Paradigm Biopharmaceuticals 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 2024, Paradigm Biopharmaceuticals had AU$25m in cash, and was debt-free. Looking at the last year, the company burnt through AU$23m. So it had a cash runway of approximately 13 months from December 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

View our latest analysis for Paradigm Biopharmaceuticals

How Is Paradigm Biopharmaceuticals' Cash Burn Changing Over Time?

Whilst it's great to see that Paradigm Biopharmaceuticals has already begun generating revenue from operations, last year it only produced AU$17k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Notably, its cash burn was actually down by 71% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Paradigm Biopharmaceuticals Raise Cash?

While we're comforted by the recent reduction evident from our analysis of Paradigm Biopharmaceuticals' cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. 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 AU$142m, Paradigm Biopharmaceuticals' AU$23m in cash burn equates to about 16% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Paradigm Biopharmaceuticals' Cash Burn A Worry?

Paradigm Biopharmaceuticals appears to be in pretty good health when it comes to its cash burn situation. One the one hand we have its solid cash burn relative to its market cap, while on the other it can also boast very strong cash burn reduction. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Paradigm Biopharmaceuticals' situation. On another note, Paradigm Biopharmaceuticals has 6 warning signs (and 3 which are significant) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.