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We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Dianthus Therapeutics (NASDAQ:DNTH) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Dianthus Therapeutics
How Long Is Dianthus Therapeutics' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Dianthus Therapeutics had cash of US$275m and no debt. Importantly, its cash burn was US$78m over the trailing twelve months. Therefore, from December 2024 it had 3.5 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.
How Well Is Dianthus Therapeutics Growing?
Notably, Dianthus Therapeutics actually ramped up its cash burn very hard and fast in the last year, by 112%, signifying heavy investment in the business. It seems likely that the vociferous operating revenue growth of 121% during that time may well have given management confidence to ramp investment. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Dianthus Therapeutics Raise Cash?
While Dianthus Therapeutics seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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. 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.