We're Not Very Worried About Bolt Biotherapeutics' (NASDAQ:BOLT) Cash Burn Rate

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Bolt Biotherapeutics (NASDAQ:BOLT) 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.

See our latest analysis for Bolt Biotherapeutics

When Might Bolt Biotherapeutics Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Bolt Biotherapeutics had US$186m in cash, and was debt-free. In the last year, its cash burn was US$59m. So it had a cash runway of about 3.1 years from December 2021. A runway of this length affords the company the time and space it needs to develop the business. You can see how its cash balance has changed over time in the image below.

How Is Bolt Biotherapeutics' Cash Burn Changing Over Time?

Whilst it's great to see that Bolt Biotherapeutics has already begun generating revenue from operations, last year it only produced US$1.3m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. With the cash burn rate up 17% in the last year, it seems that the company is ratcheting up investment in the business over time. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. 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 Easily Can Bolt Biotherapeutics Raise Cash?

While Bolt Biotherapeutics does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. 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).

Bolt Biotherapeutics has a market capitalisation of US$96m and burnt through US$59m last year, which is 62% of the company's market value. Given how large that cash burn is, relative to the market value of the entire company, we'd consider it to be a high risk stock, with the real possibility of extreme dilution.

Is Bolt Biotherapeutics' Cash Burn A Worry?

On this analysis of Bolt Biotherapeutics' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Bolt Biotherapeutics (1 doesn't sit too well with us!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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.