There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, IGM Biosciences (NASDAQ:IGMS) has seen its share price rise 141% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for IGM Biosciences shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for IGM Biosciences

How Long Is IGM Biosciences' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When IGM Biosciences last reported its balance sheet in September 2020, it had zero debt and cash worth US$180m. Importantly, its cash burn was US$68m over the trailing twelve months. Therefore, from September 2020 it had 2.7 years of cash runway. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

How Is IGM Biosciences' Cash Burn Changing Over Time?

Because IGM Biosciences isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by a very significant 64%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. 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.

Can IGM Biosciences Raise More Cash Easily?

Given its cash burn trajectory, IGM Biosciences shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.