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. By way of example, Foghorn Therapeutics (NASDAQ:FHTX) has seen its share price rise 156% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for Foghorn Therapeutics shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Foghorn Therapeutics

Does Foghorn Therapeutics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Foghorn Therapeutics last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$267m. Looking at the last year, the company burnt through US$104m. So it had a cash runway of about 2.6 years from September 2024. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Foghorn Therapeutics Growing?

On balance, we think it's mildly positive that Foghorn Therapeutics trimmed its cash burn by 14% over the last twelve months. But the revenue dip of 22% in the same period was a bit concerning. Considering both these factors, we're not particularly excited by its growth profile. 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.

Can Foghorn Therapeutics Raise More Cash Easily?

While Foghorn Therapeutics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel 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).

Foghorn Therapeutics has a market capitalisation of US$458m and burnt through US$104m last year, which is 23% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is Foghorn Therapeutics' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Foghorn Therapeutics' cash runway was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Foghorn Therapeutics' situation. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Foghorn Therapeutics (of which 2 are a bit concerning!) you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.