Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, Merus (NASDAQ:MRUS) shareholders have done very well over the last year, with the share price soaring by 114%. 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.

In light of its strong share price run, we think now is a good time to investigate how risky Merus' cash burn is. 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Merus

How Long Is Merus' 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 June 2024, Merus had cash of US$787m and no debt. In the last year, its cash burn was US$104m. That means it had a cash runway of about 7.6 years as of June 2024. Importantly, though, analysts think that Merus will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

How Well Is Merus Growing?

It was fairly positive to see that Merus reduced its cash burn by 34% during the last year. Unfortunately, however, operating revenue declined by 15% during the period. On balance, we'd say the company is improving over time. 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 Merus Raise More Cash Easily?

We are certainly impressed with the progress Merus has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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$3.4b, Merus' US$104m in cash burn equates to about 3.1% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.