Is IDEAYA Biosciences (NASDAQ:IDYA) In A Good Position To Invest In Growth?

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether IDEAYA Biosciences (NASDAQ:IDYA) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

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When Might IDEAYA Biosciences Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2024, IDEAYA Biosciences had US$676m in cash, and was debt-free. Importantly, its cash burn was US$251m over the trailing twelve months. That means it had a cash runway of about 2.7 years as of December 2024. Notably, analysts forecast that IDEAYA Biosciences will break even (at a free cash flow level) in about 5 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.

Check out our latest analysis for IDEAYA Biosciences

How Well Is IDEAYA Biosciences Growing?

Notably, IDEAYA Biosciences actually ramped up its cash burn very hard and fast in the last year, by 114%, signifying heavy investment in the business. That's pretty alarming given that operating revenue dropped 70% over the last year, though the business is likely attempting a strategic pivot. Considering these two factors together makes us nervous about the direction the company seems to be heading. 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 Hard Would It Be For IDEAYA Biosciences To Raise More Cash For Growth?

While IDEAYA Biosciences seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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).

IDEAYA Biosciences' cash burn of US$251m is about 17% of its US$1.5b market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is IDEAYA Biosciences' Cash Burn A Worry?

On this analysis of IDEAYA Biosciences' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. One real positive is that analysts are forecasting that the company will reach breakeven. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. An in-depth examination of risks revealed 2 warning signs for IDEAYA Biosciences that readers should think about before committing capital to this stock.

Of course IDEAYA Biosciences 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 with high insider ownership.

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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.