We're Not Very Worried About 4D Molecular Therapeutics' (NASDAQ:FDMT) 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 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.

So should 4D Molecular Therapeutics (NASDAQ:FDMT) shareholders be worried about its cash burn? 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for 4D Molecular Therapeutics

When Might 4D Molecular Therapeutics Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2023, 4D Molecular Therapeutics had cash of US$310m and no debt. Importantly, its cash burn was US$98m over the trailing twelve months. That means it had a cash runway of about 3.2 years as of June 2023. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is 4D Molecular Therapeutics Growing?

In the last twelve months, 4D Molecular Therapeutics kept its cash burn steady. Unfortunately, however, operating revenue actually dropped 20%, which is a worry. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can 4D Molecular Therapeutics Raise Cash?

Even though it seems like 4D Molecular Therapeutics 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. 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 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.

4D Molecular Therapeutics' cash burn of US$98m is about 20% of its US$484m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is 4D Molecular Therapeutics' Cash Burn A Worry?

On this analysis of 4D Molecular Therapeutics' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about 4D Molecular Therapeutics' situation. On another note, 4D Molecular Therapeutics has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

Of course 4D Molecular 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.