We're Not Very Worried About Monte Rosa Therapeutics' (NASDAQ:GLUE) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. 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 Monte Rosa Therapeutics (NASDAQ:GLUE) shareholders should 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.

View our latest analysis for Monte Rosa Therapeutics

When Might Monte Rosa Therapeutics Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at September 2024, Monte Rosa Therapeutics had cash of US$242m and no debt. Looking at the last year, the company burnt through US$63m. Therefore, from September 2024 it had 3.9 years of cash runway. 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 Monte Rosa Therapeutics' Cash Burn Changing Over Time?

In our view, Monte Rosa Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$15m in the last twelve months. 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. Even though it doesn't get us excited, the 49% reduction in cash burn year on year does suggest the company can continue operating for quite some time. 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 Monte Rosa Therapeutics Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Monte Rosa Therapeutics to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Monte Rosa Therapeutics' cash burn of US$63m is about 16% of its US$382m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Monte Rosa Therapeutics' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Monte Rosa Therapeutics is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Its weak point is its cash burn relative to its market cap, but even that wasn't too bad! Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking an in-depth view of risks, we've identified 3 warning signs for Monte Rosa Therapeutics that you should be aware of before investing.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.