We can readily understand why investors are attracted to unprofitable companies. For example, Pulse Biosciences (NASDAQ:PLSE) shareholders have done very well over the last year, with the share price soaring by 174%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Pulse Biosciences' cash burn is too risky. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Pulse Biosciences

When Might Pulse Biosciences 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. When Pulse Biosciences last reported its September 2024 balance sheet in October 2024, it had zero debt and cash worth US$79m. Looking at the last year, the company burnt through US$34m. So it had a cash runway of about 2.3 years from September 2024. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Is Pulse Biosciences' Cash Burn Changing Over Time?

Because Pulse Biosciences isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. It seems likely that the business is content with its current spending, as the cash burn rate stayed steady over the last twelve months. Admittedly, we're a bit cautious of Pulse Biosciences due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can Pulse Biosciences Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Pulse Biosciences to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Pulse Biosciences has a market capitalisation of US$1.1b and burnt through US$34m last year, which is 3.2% 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.

So, Should We Worry About Pulse Biosciences' Cash Burn?

As you can probably tell by now, we're not too worried about Pulse Biosciences' cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking a deeper dive, we've spotted 3 warning signs for Pulse Biosciences you should be aware of, and 1 of them is a bit concerning.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, 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.