Here's Why We're Not Too Worried About IDEAYA Biosciences' (NASDAQ:IDYA) Cash Burn Situation

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editorial-team@simplywallst.com (Simply Wall St)

Sat, Sep 30, 2023, 6:40 AM 3 min read

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should IDEAYA Biosciences (NASDAQ:IDYA) shareholders be worried about its cash burn? 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.

Check out our latest analysis for IDEAYA Biosciences

When Might IDEAYA 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 IDEAYA Biosciences last reported its balance sheet in June 2023, it had zero debt and cash worth US$494m. Importantly, its cash burn was US$111m over the trailing twelve months. Therefore, from June 2023 it had 4.5 years of cash runway. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis — NasdaqGS:IDYA Debt to Equity History September 30th 2023

How Well Is IDEAYA Biosciences Growing?

IDEAYA Biosciences boosted investment sharply in the last year, with cash burn ramping by 54%. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 55%. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For IDEAYA Biosciences To Raise More Cash For Growth?

We are certainly impressed with the progress IDEAYA Biosciences has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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 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).

IDEAYA Biosciences has a market capitalisation of US$1.5b and burnt through US$111m last year, which is 7.2% of the company's market value. 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.

So, Should We Worry About IDEAYA Biosciences' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way IDEAYA Biosciences is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. An in-depth examination of risks revealed 2 warning signs for IDEAYA Biosciences that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.