There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Zymeworks (NASDAQ:ZYME) has seen its share price rise 103% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

In light of its strong share price run, we think now is a good time to investigate how risky Zymeworks' cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

When Might Zymeworks Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Zymeworks last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth US$297m. In the last year, its cash burn was US$59m. That means it had a cash runway of about 5.0 years as of September 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

Is Zymeworks' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Zymeworks actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Sadly, operating revenue actually dropped like a stone in the last twelve months, falling 87%, which is rather concerning. 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 Zymeworks Raise Cash?

Given its problematic fall in revenue, Zymeworks shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Zymeworks has a market capitalisation of US$915m and burnt through US$59m last year, which is 6.5% of the company's 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.

How Risky Is Zymeworks' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Zymeworks is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its falling revenue is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Zymeworks that potential shareholders should take into account before putting money into a stock.

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.