We're Not Very Worried About CRISPR Therapeutics' (NASDAQ:CRSP) Cash Burn Rate

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 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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should CRISPR Therapeutics (NASDAQ:CRSP) shareholders 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for CRISPR Therapeutics

How Long Is CRISPR Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2023, CRISPR Therapeutics had US$1.9b in cash, and was debt-free. Importantly, its cash burn was US$377m over the trailing twelve months. Therefore, from March 2023 it had 5.0 years of cash runway. Notably, however, analysts think that CRISPR Therapeutics will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

Is CRISPR Therapeutics' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because CRISPR Therapeutics actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. The bad news for shareholders is that operating revenue actually plummeted 89% in the last year, which is a real concern in our view. 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.

Can CRISPR Therapeutics Raise More Cash Easily?

Since its revenue growth is moving in the wrong direction, CRISPR Therapeutics shareholders may wish to think 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. 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.

CRISPR Therapeutics' cash burn of US$377m is about 8.0% of its US$4.7b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About CRISPR Therapeutics' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way CRISPR Therapeutics is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking an in-depth view of risks, we've identified 2 warning signs for CRISPR Therapeutics that you should be aware of before investing.

Of course CRISPR Therapeutics may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.