Just because a business does not make any money, does not mean that the stock will go down. For example, Avecho Biotechnology (ASX:AVE) shareholders have done very well over the last year, with the share price soaring by 229%. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So notwithstanding the buoyant share price, we think it's well worth asking whether Avecho Biotechnology's cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
Does Avecho Biotechnology 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 Avecho Biotechnology last reported its June 2026 balance sheet in August 2026, it had zero debt and cash worth AU$6.6m. Importantly, its cash burn was AU$3.6m over the trailing twelve months. That means it had a cash runway of around 22 months as of June 2026. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.
View our latest analysis for Avecho Biotechnology
How Hard Would It Be For Avecho Biotechnology To Raise More Cash For 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).
Avecho Biotechnology's cash burn of AU$3.6m is about 4.0% of its AU$89m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
How Risky Is Avecho Biotechnology's Cash Burn Situation?
Given it's an early stage company, we don't have a lot of data with which to judge Avecho Biotechnology's cash burn. Having said that, we can say that its cash burn relative to its market cap was a real positive. To put it simply, we think its cash burn situation is totally fine given it is still developing its business. Taking a deeper dive, we've spotted 5 warning signs for Avecho Biotechnology you should be aware of, and 3 of them don't sit too well with us.
Of course Avecho Biotechnology 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.