We're Interested To See How 4D Molecular Therapeutics (NASDAQ:FDMT) Uses Its Cash Hoard To Grow

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should 4D Molecular Therapeutics (NASDAQ:FDMT) shareholders be worried about its 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for 4D Molecular Therapeutics

Does 4D Molecular Therapeutics Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at March 2024, 4D Molecular Therapeutics had cash of US$526m and no debt. In the last year, its cash burn was US$79m. So it had a cash runway of about 6.6 years from March 2024. Importantly, though, analysts think that 4D Molecular Therapeutics will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is 4D Molecular Therapeutics Growing?

On balance, we think it's mildly positive that 4D Molecular Therapeutics trimmed its cash burn by 18% over the last twelve months. But that's nothing compared to its mouth-watering operating revenue growth of 826%. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 4D Molecular Therapeutics Raise Cash?

There's no doubt 4D Molecular Therapeutics seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

4D Molecular Therapeutics has a market capitalisation of US$1.3b and burnt through US$79m last year, which is 6.0% 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 4D Molecular Therapeutics' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way 4D Molecular Therapeutics is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. One real positive is that analysts are forecasting that the company will reach breakeven. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Separately, we looked at different risks affecting the company and spotted 3 warning signs for 4D Molecular Therapeutics (of which 1 is a bit unpleasant!) you should know about.

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.