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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, IGM Biosciences (NASDAQ:IGMS) shareholders have done very well over the last year, with the share price soaring by 181%. 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 IGM Biosciences shareholders to consider whether its cash burn is concerning. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for IGM Biosciences
When Might IGM Biosciences Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When IGM Biosciences last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$256m. Importantly, its cash burn was US$176m over the trailing twelve months. That means it had a cash runway of around 17 months as of June 2024. 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. The image below shows how its cash balance has been changing over the last few years.
How Well Is IGM Biosciences Growing?
On balance, we think it's mildly positive that IGM Biosciences trimmed its cash burn by 10.0% over the last twelve months. Having said that, the revenue growth of 74% was considerably more inspiring. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can IGM Biosciences Raise Cash?
Even though it seems like IGM Biosciences is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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).
Since it has a market capitalisation of US$939m, IGM Biosciences' US$176m in cash burn equates to about 19% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.