We can readily understand why investors are attracted to unprofitable companies. By way of example, Crinetics Pharmaceuticals (NASDAQ:CRNX) has seen its share price rise 188% over the last year, delighting many shareholders. 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.

Given its strong share price performance, we think it's worthwhile for Crinetics Pharmaceuticals shareholders to consider whether its cash burn is concerning. 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'.

View our latest analysis for Crinetics Pharmaceuticals

When Might Crinetics Pharmaceuticals Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, Crinetics Pharmaceuticals had cash of US$863m and no debt. Looking at the last year, the company burnt through US$185m. That means it had a cash runway of about 4.7 years as of June 2024. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Crinetics Pharmaceuticals Growing?

Some investors might find it troubling that Crinetics Pharmaceuticals is actually increasing its cash burn, which is up 15% in the last year. The fact that operating revenue was down 71% only gives us further disquiet. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. 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 Crinetics Pharmaceuticals To Raise More Cash For Growth?

Even though it seems like Crinetics Pharmaceuticals 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. 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.