We're Hopeful That Zymeworks (NASDAQ:ZYME) Will Use Its Cash Wisely

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 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 Zymeworks (NASDAQ:ZYME) shareholders should 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

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Does Zymeworks Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Zymeworks had cash of US$226m and no debt. In the last year, its cash burn was US$113m. That means it had a cash runway of about 2.0 years as of December 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. The image below shows how its cash balance has been changing over the last few years.

See our latest analysis for Zymeworks

How Well Is Zymeworks Growing?

On balance, we think it's mildly positive that Zymeworks trimmed its cash burn by 7.6% over the last twelve months. However, operating revenue was basically flat over that time period. Considering both these factors, we're not particularly excited by its growth profile. 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.

Can Zymeworks Raise More Cash Easily?

Even though it seems like Zymeworks is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of US$765m, Zymeworks' US$113m in cash burn equates to about 15% of its market value. 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.

So, Should We Worry About Zymeworks' Cash Burn?

The good news is that in our view Zymeworks' cash burn situation gives shareholders real reason for optimism. Not only was its cash burn relative to its market cap quite good, but its cash runway was a real positive. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Zymeworks (1 is a bit unpleasant!) that you should be aware of before investing here.

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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.