Cash Flow Analysis: Arcadia Pharmaceuticals Inc (ACAD)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
ACADIA PHARMACEUTICALS INC US/
NAS
Healthcare – Biotechnology – Biotechnology USD17.84
@ 09 Jul 2018
COMPANY PROFILE ACADIA Pharmaceuticals Inc is a biotechnology company which develops and commercializes biopharmaceutical products to address central nervous system disorders. It aims to discover small molecule drugs to address Parkinson’s, Alzheimer’s and schizophrenia.

Acadia Pharmaceuticals is a biotechnology company that develops and commercializes biopharmaceutical products to address central nervous system disorders. The company aims to discover small molecule drugs that address disorders such as Parkinson’s, Alzheimer’s, and schizophrenia. Acadia also seeks to in-license or acquire complementary products and candidates. The company’s patent applications claim proprietary technology, including novel methods of screening and chemical synthetic methods, novel drug targets, and novel compounds identified using its technology.

Stock Code ACAD
Cash Flow Analysis Below
Cash is the lifeline of a business. The company needs cash, not profits to pay salaries, suppliers etc. Profits may not translate to cash if a company is not efficient in managing its Cash Conversion Cycle (more of that below). For example, when a company sells a product at a price higher than costs, it makes a profit. But until he collects payment from the customer, the profit does not translate into cash. Cash Flow Analysis is about analyzing whether a company is able to generate healthy cash flows, which are essential not only to grow the business but also to remain in business.
The chart belows looks at whether the company’s cash has increased or decreased through the years (the blue line indicates the change in cash). The colored boxes show what had caused the cash to increase or decrease. If the boxes are above/below the zero line, it had caused an increase/decrease in cash during that year. In a healthy situation, the company should be generating Cash from Operations (i.e. from its core business). If a company generates Cash from Financing, it means it is borrowing more, which may cause its financial condition to deteriorate. If it generates Cash from Investing, it means it is either issuing more shares, which may lead to earnings dilution or selling businesses/assets, which may lead to lower future earnings.

Arcadia Pharmaceuticals Cash Flow Analysis

In the last 5 years, the company’s cash increased cash by USD11,514. Cash from Operations decreased cash by USD648,263, Cash from Investing Activities decreased cash by USD235,258 while Cash from Financing Activities increased cash by USD895,035. The most important contributor to cash is Cash from Financing Activities, which is not a healthy sign.

Arcadia Pharmaceuticals Cash Flow from Operations

In a healthy situation, a company should get most of its Cash from Operations by increasing its Funds from Operations (i.e. Net Income plus Non-cash expenses). When a business grows, part of the profits may be tied up in working capital (as receivables and inventory increases) but this should not consume up the majority of the Cash from Operations.
In the last 5 years, the company’s Cash from Operations decreased cash by USD648,263. The biggest item affecting Cash from Operations is Funds from Operations (i.e. Net Income plus Non-cash expenses), which decreased cash by USD850,189. This is an unhealthy sign. This is followed by Change in working capital, which increased cash by USD191,647. This is a healthy sign.

Arcadia Pharmaceuticals Cash Flow from Financing Activities

A growing company may continuously need to raise funds via issuance of stock and debt. However, if this is done excessive, it will lead to an unhealthy situation. Too much new issue of stocks will dilute Earnings per Share and too much debt will cause the company’s financial condition to weaken. Payment of Dividends or share buybacks are good if the company is profitable and generating healthy Cash from Operations. However, a company should not be issuing new debt in order to do these.
In the last 5 years, the company’s Cash from Financing Activities increased cash by USD895,035. The biggest item affecting Cash from Financing Activities is Net Issuance/(Repurchase) of Stock, which increased cash by USD880,164. This means that the company issued new shares. This is followed by Addition/(Reduction) in other Financing Sources, which increased cash by USD14,871. This means that the company borrowed more from other sources.
The company did not rely on borrowings to pay dividends and/or buy back shares, which is a healthy sign.

Arcadia Pharmaceuticals Cash Flow from Investing Activities

Cash Flow from Investing Activities refers to whether the company is spending money to purchase assets or businesses or raising cash by selling assets or businesses. This analysis goes hand-in-hand with the analysis of Free Cash Flows above. We want to ensure that a company is generating enough cash flow from its businesses even after making the necessary investments. Unless investment is a core component of a company’s business, it should not be spending a large amount of cash to make investments.
In the last 5 years, the company’s Cash from Investing Activities decreased cash by USD235,258. The biggest item affecting this is (Purchase)/Sale Of Investment, which decreased cash by USD222,013. This is followed by Cash From Other Investing Activities, which decreased cash by USD8,000. On a net basis, the company did not use any cash to purchase investments.

 

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