We're Not Worried About IGM Biosciences' (NASDAQ:IGMS) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. 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, the natural question for IGM Biosciences (NASDAQ:IGMS) shareholders is whether they should be concerned by its rate of 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'.

View our latest analysis for IGM Biosciences

SWOT Analysis for IGM Biosciences

How Long Is IGM Biosciences' Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In December 2022, IGM Biosciences had US$427m in cash, and was debt-free. Looking at the last year, the company burnt through US$16m. So it had a very long cash runway of many years from December 2022. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

How Is IGM Biosciences' Cash Burn Changing Over Time?

In our view, IGM Biosciences doesn't yet produce significant amounts of operating revenue, since it reported just US$1.1m 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. From a cash flow perspective, it's great to see the company's cash burn dropped by 88% over the last year. That might not be promising when it comes to business development, but it's good for the companies cash preservation. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can IGM Biosciences Raise Cash?

There's no doubt IGM Biosciences' rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further 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.

IGM Biosciences' cash burn of US$16m is about 2.9% of its US$550m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About IGM Biosciences' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way IGM Biosciences is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. And even its cash burn relative to its market cap was very encouraging. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. An in-depth examination of risks revealed 4 warning signs for IGM Biosciences that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.