Just because a business does not make any money, does not mean that the stock will go down. By way of example, Crinetics Pharmaceuticals (NASDAQ:CRNX) has seen its share price rise 121% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Crinetics Pharmaceuticals' cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Does Crinetics Pharmaceuticals Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at March 2024, Crinetics Pharmaceuticals had cash of US$901m and no debt. Looking at the last year, the company burnt through US$184m. That means it had a cash runway of about 4.9 years as of March 2024. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Crinetics Pharmaceuticals Growing?

At first glance it's a bit worrying to see that Crinetics Pharmaceuticals actually boosted its cash burn by 28%, year on year. The fact that operating revenue was down 54% only gives us further disquiet. Taken together, we think these growth metrics are a little worrying. 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 Crinetics Pharmaceuticals Raise Cash?

Crinetics Pharmaceuticals 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.

Crinetics Pharmaceuticals has a market capitalisation of US$4.0b and burnt through US$184m last year, which is 4.6% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Crinetics Pharmaceuticals' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Crinetics Pharmaceuticals' cash runway was relatively promising. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. An in-depth examination of risks revealed 3 warning signs for Crinetics Pharmaceuticals that readers should think about before committing capital to this stock.

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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.