Companies like Jasper Therapeutics (NASDAQ: JSPR) are able to invest in growth

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Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. 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. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.

In view of this risk, we thought to examine whether Jasper Therapeutic (NASDAQ: JSPR) shareholders should be concerned about its consumption of cash. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. Let’s start with a review of the company’s cash flow, relative to its cash consumption.

Check out our latest review for Jasper Therapeutics

Does Jasper Therapeutics have a long cash flow trail?

A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. When Jasper Therapeutics last released its balance sheet in September 2021, it had no debt and $ 101 million in cash. Importantly, its cash consumption amounted to US $ 26 million over the past twelve months. This means he had a cash trail of around 3.9 years as of September 2021. There is no doubt that this is a long and reassuring trail. Pictured below, you can see how his cash holdings have changed over time.

debt-equity-historical-analysis

How does Jasper Therapeutics’ silver consumption change over time?

Jasper Therapeutics has not recorded any sales 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. Over the past twelve months, its cash consumption has actually increased by 85%. While this increase in spending is undoubtedly intended to drive growth, if the trend continues, the company’s cash flow trail will narrow very quickly. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.

Can Jasper Therapeutics Easily Raise More Money?

Given its cash-consuming trajectory, Jasper Therapeutics shareholders may want to consider how easily it could raise more cash, despite its strong liquidity trail. Businesses can raise capital through debt or equity. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to run the business for another year (at the same burn rate).

Jasper Therapeutics has a market capitalization of US $ 302 million and spent US $ 26 million last year, or 8.7% of the market value of the company. 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.

Is Jasper Therapeutics’ money consumption a concern?

It may already be obvious to you that we are relatively comfortable with the way Jasper Therapeutics burns its money. For example, we think his cash flow trail suggests the business is on the right track. While we find its growing cash consumption to be a bit negative, once we consider the other metrics mentioned in this article together, the overall picture is one we’re comfortable with. Looking at all of the metrics in this article, together, we’re not worried about its rate of cash consumption; the business appears to be well above its medium-term spending needs. By diving deeper, we spotted 4 warning signs for Jasper Therapeutics you need to be aware of this, and 2 of them make us uncomfortable.

Sure Jasper Therapeutics May Not Be The Best Stock To Buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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