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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Assembly Biosciences (NASDAQ:ASMB) shareholders be worried about its cash burn? 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.

Our free stock report includes 4 warning signs investors should be aware of before investing in Assembly Biosciences. Read for free now.

How Long Is Assembly Biosciences' Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2024, Assembly Biosciences had cash of US$112m and no debt. Importantly, its cash burn was US$51m over the trailing twelve months. That means it had a cash runway of about 2.2 years as of December 2024. Importantly, analysts think that Assembly Biosciences will reach cashflow breakeven in 3 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. The image below shows how its cash balance has been changing over the last few years.

See our latest analysis for Assembly Biosciences

Is Assembly Biosciences' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Assembly Biosciences actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Happily for shareholders, the revenue is up a stonking 298% over the last year. While the past is always worth studying, it is the future that matters most of all. 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 Assembly Biosciences Raise Cash?

There's no doubt Assembly Biosciences' revenue growth is impressive but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Assembly Biosciences' cash burn of US$51m is about 60% of its US$85m market capitalisation. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

How Risky Is Assembly Biosciences' Cash Burn Situation?

On this analysis of Assembly Biosciences' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. 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 Assembly Biosciences' situation. On another note, Assembly Biosciences has 4 warning signs (and 2 which are significant) we think you should know about.

Of course Assembly Biosciences 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.