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, 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for 4D Molecular Therapeutics (NASDAQ:FDMT) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for 4D Molecular Therapeutics

How Long Is 4D Molecular Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, 4D Molecular Therapeutics had US$542m in cash, and was debt-free. Looking at the last year, the company burnt through US$87m. Therefore, from June 2024 it had 6.2 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

How Well Is 4D Molecular Therapeutics Growing?

4D Molecular Therapeutics reduced its cash burn by 11% during the last year, which points to some degree of discipline. But this achievement is overshadowed by the brilliant operating revenue growth of 785%. We think it is growing rather well, upon reflection. 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 Hard Would It Be For 4D Molecular Therapeutics To Raise More Cash For Growth?

We are certainly impressed with the progress 4D Molecular Therapeutics 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. 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).

Since it has a market capitalisation of US$445m, 4D Molecular Therapeutics' US$87m in cash burn equates to about 20% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is 4D Molecular Therapeutics' Cash Burn Situation?

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 relative to its market cap was its weakest feature, but we are not concerned about it. 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. Taking a deeper dive, we've spotted 3 warning signs for 4D Molecular Therapeutics you should be aware of, and 1 of them can't be ignored.

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.