Here's Why We're Not Too Worried About OncoTherapy Science's (TSE:4564) Cash Burn Situation
There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for OncoTherapy Science (TSE:4564) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
How Long Is OncoTherapy Science's Cash Runway?
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. As at June 2026, OncoTherapy Science had cash of JP¥2.3b and no debt. Looking at the last year, the company burnt through JP¥984m. That means it had a cash runway of about 2.4 years as of June 2026. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
Check out our latest analysis for OncoTherapy Science
How Well Is OncoTherapy Science Growing?
Some investors might find it troubling that OncoTherapy Science is actually increasing its cash burn, which is up 20% in the last year. And we must say we find it concerning that operating revenue dropped 8.7% over the same period. Considering both these factors, we're not particularly excited by its growth profile. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how OncoTherapy Science is building its business over time.
How Hard Would It Be For OncoTherapy Science To Raise More Cash For Growth?
Even though it seems like OncoTherapy Science is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
OncoTherapy Science has a market capitalisation of JP¥9.0b and burnt through JP¥984m last year, which is 11% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
Is OncoTherapy Science's Cash Burn A Worry?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought OncoTherapy Science's cash runway was relatively promising. 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 OncoTherapy Science's situation. Taking a deeper dive, we've spotted 4 warning signs for OncoTherapy Science you should be aware of, and 2 of them are potentially serious.
Of course OncoTherapy Science may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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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.