Here's Why We're Watching GRAIL's (NASDAQ:GRAL) Cash Burn Situation

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. 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 GRAIL (NASDAQ:GRAL) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for GRAIL

How Long Is GRAIL's Cash Runway?

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, GRAIL had cash of US$854m and no debt. In the last year, its cash burn was US$621m. So it had a cash runway of approximately 16 months from September 2024. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Well Is GRAIL Growing?

Some investors might find it troubling that GRAIL is actually increasing its cash burn, which is up 3.1% in the last year. The good news is that operating revenue increased by 26% in the last year, indicating that the business is gaining some traction. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can GRAIL Raise Cash?

GRAIL seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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.

GRAIL's cash burn of US$621m is about the same as its market capitalisation of US$617m. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

So, Should We Worry About GRAIL's Cash Burn?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought GRAIL's revenue growth was relatively promising. Summing up, we think the GRAIL's cash burn is a risk, based on the factors we mentioned in this article. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 3 warning signs for GRAIL that investors should know when investing in the stock.

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.