We can readily understand why investors are attracted to unprofitable companies. Indeed, Entera Bio (NASDAQ:ENTX) stock is up 248% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given its strong share price performance, we think it's worthwhile for Entera Bio shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Entera Bio

Does Entera Bio 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. When Entera Bio last reported its balance sheet in June 2021, it had zero debt and cash worth US$27m. Importantly, its cash burn was US$8.6m over the trailing twelve months. So it had a cash runway of about 3.1 years from June 2021. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Is Entera Bio's Cash Burn Changing Over Time?

Whilst it's great to see that Entera Bio has already begun generating revenue from operations, last year it only produced US$537k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 22% over the last year suggests some degree of prudence. 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.

Can Entera Bio Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Entera Bio to raise more cash in the future. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.