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Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 Crinetics Pharmaceuticals (NASDAQ:CRNX) shareholders should be worried about its 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. 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 Crinetics Pharmaceuticals
How Long Is Crinetics Pharmaceuticals' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Crinetics Pharmaceuticals had cash of US$1.4b and no debt. Importantly, its cash burn was US$230m over the trailing twelve months. So it had a cash runway of about 5.9 years from December 2024. Notably, however, analysts think that Crinetics Pharmaceuticals will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Crinetics Pharmaceuticals Growing?
At first glance it's a bit worrying to see that Crinetics Pharmaceuticals actually boosted its cash burn by 34%, year on year. It's even more troubling to see that operating revenue fell 74% during the period. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. 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 Crinetics Pharmaceuticals Raise More Cash Easily?
Even though it seems like Crinetics Pharmaceuticals is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.