There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Mineralys Therapeutics (NASDAQ:MLYS) 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'. Let's start with an examination of the business' cash, relative to its cash burn.

When Might Mineralys Therapeutics Run Out Of Money?

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, Mineralys Therapeutics had cash of US$339m and no debt. Importantly, its cash burn was US$88m over the trailing twelve months. That means it had a cash runway of about 3.9 years as of March 2024. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Is Mineralys Therapeutics' Cash Burn Changing Over Time?

Because Mineralys Therapeutics isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. The skyrocketing cash burn up 147% year on year certainly tests our nerves. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Mineralys Therapeutics Raise More Cash Easily?

Given its cash burn trajectory, Mineralys Therapeutics shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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.

Mineralys Therapeutics has a market capitalisation of US$670m and burnt through US$88m last year, which is 13% of the company's 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 Mineralys Therapeutics' Cash Burn?

On this analysis of Mineralys Therapeutics' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. 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. On another note, Mineralys Therapeutics has 4 warning signs (and 2 which can't be ignored) we think you should know about.

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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.