Companies like Talis Biomedical (NASDAQ:TLIS) could be quite risky

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We can easily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But while history boasts of these rare successes, those who fail are often forgotten; who remembers Pets.com?

So should Talis Biomedical (NASDAQ:TLIS) Are shareholders worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable business spends money to finance its growth; its negative free cash flow. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.

Does Talis Biomedical have a long cash trail?

You can calculate a company’s cash trail by dividing the amount of cash it has on hand by the rate at which it spends that money. As of June 2022, Talis Biomedical had cash of US$165 million and no debt. Last year, its cash burn was $184 million. This means that it had a cash trail of around 11 months in June 2022. This is a fairly short cash trail, indicating that the company either needs to reduce its annual cash burn or rebuild its cash. However, if we extrapolate the company’s recent cash burn trend, then it would have a longer cash flow. You can see how his cash balance has changed over time in the image below.

NasdaqGM: Historical Debt to Equity TLIS August 22, 2022

How is Talis Biomedical growing?

On the face of it, it’s a little concerning that Talis Biomedical actually increased its cash burn by 37%, year-over-year. The fact that operating revenue is down 71% only makes us more concerned. Considering these two factors together makes us nervous about the direction society seems to be heading. While the past is always worth studying, it is the future that matters most. You might want to take a look at the company’s expected growth over the next few years.

How difficult would it be for Talis Biomedical to raise more funds for growth?

Talis Biomedical’s revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Companies can raise capital either through debt or equity. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise funds and finance their growth. We can compare a company’s cash burn to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund a year’s operations.

Talis Biomedical’s cash burn of US$184 million represents approximately 754% of its market capitalization of US$24 million. This suggests that the company may be struggling with funding, and we would be very wary of stocks.

How risky is Talis Biomedical’s cash burn situation?

As you can probably tell by now, we’re rather concerned about Talis Biomedical’s cash burn. Take, for example, its cash burn relative to its market capitalization, which suggests that the company may struggle to fund itself in the future. And while we accept that its cash trail wasn’t as worrisome as its cash burn relative to its market capitalization, it was still a true negative; as indeed all the factors we have taken into account in this article. After we look at the metrics mentioned in this article together, we have very little confidence in the company’s ability to manage its cash burn, and we think it will likely need more silver. A thorough examination of the risks revealed 5 warning signs for Talis Biomedical readers should consider before committing capital to this title.

If you prefer to consult another company with better fundamentals, do not miss this free list of interesting companies, which have a high return on equity and low debt or this list of stocks which should all grow.

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

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