Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Rallybio (NASDAQ:RLYB) shareholders be worried about its 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Rallybio

When Might Rallybio Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Rallybio last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$75m. Importantly, its cash burn was US$51m over the trailing twelve months. So it had a cash runway of approximately 18 months from September 2024. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

How Is Rallybio's Cash Burn Changing Over Time?

In our view, Rallybio doesn't yet produce significant amounts of operating revenue, since it reported just US$598k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 20% over the last year suggests some degree of prudence. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Rallybio Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Rallybio to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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$30m, Rallybio's US$51m in cash burn equates to about 170% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

Is Rallybio's Cash Burn A Worry?

On this analysis of Rallybio's cash burn, we think its cash burn reduction was reassuring, while its cash burn relative to its market cap has us a bit worried. Summing up, we think the Rallybio's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 3 warning signs for Rallybio you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course Rallybio may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.