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Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for IDEAYA Biosciences (NASDAQ:IDYA) shareholders is whether they should be concerned by its rate of cash burn. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for IDEAYA Biosciences
How Long Is IDEAYA Biosciences' Cash Runway?
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. In September 2024, IDEAYA Biosciences had US$920m in cash, and was debt-free. In the last year, its cash burn was US$153m. Therefore, from September 2024 it had 6.0 years of cash runway. Importantly, though, analysts think that IDEAYA Biosciences will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.
How Well Is IDEAYA Biosciences Growing?
Some investors might find it troubling that IDEAYA Biosciences is actually increasing its cash burn, which is up 32% in the last year. It's even worse to see operating revenue down 83% in the same period. Considering these two factors together makes us nervous about the direction the company seems to be heading. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can IDEAYA Biosciences Raise Cash?
IDEAYA Biosciences seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.