We hope LENZ Therapeutics (NASDAQ:LENZ) will put its cash to good use

Even if a company suffers losses, it is possible for shareholders to make money if they buy a good company at the right price. For example, even though Amazon.com made losses for many years after it went public, if you had bought and held the shares since 1999, you would have made a fortune. Yet while history lauds these rare successes, those who fail are often forgotten; Who remembers Pets.com?

Given this risk, we thought we should check LENZ Therapeutics (NASDAQ:LENZ) shareholders should be concerned about cash burn. In this article, we define cash burn as annual (negative) free cash flow, which is the amount of money a company spends each year to finance its growth. First, we determine cash runway by comparing cash burn with cash reserves.

Check out our latest analysis for LENZ Therapeutics

A company’s cash runway is calculated by dividing its cash supply by its cash burn. As of September 2024, LENZ Therapeutics had cash of US$217 million and no debt. Last year the company burned through $72 million. This means that the company had a cash maturity of approximately 3.0 years as of September 2024. Importantly, analysts expect LENZ Therapeutics to reach cash flow breakeven in 4 years. This means the company doesn’t have a lot of headroom, but it shouldn’t really need more cash considering that cash burn should continue to decline. The image below shows how its cash balance has changed over the last few years.

LENZ Therapeutics reported no sales last year, suggesting that it is a young company that is still developing its business. Nevertheless, we can examine the development of cash burn as part of our assessment of the cash burn situation. Last year, cash burn even increased by an impressive 53%. While this spending increase is undoubtedly intended to spur growth, the company’s cash reserve will shrink very quickly if this trend continues. However, the deciding factor is clearly whether the company will expand its business in the future. This is why it makes a lot of sense to take a look at our analysts’ forecasts for the company.

Given how its cash burn is trending, LENZ Therapeutics shareholders may want to consider how easily the company could raise more cash, despite its solid cash position. Companies can raise capital either through debt or equity. Generally, a company sells new shares to raise cash and fuel growth. We can compare a company’s cash burn with its market capitalization to get a sense of how many new shares a company would need to issue to fund its operations for a year.

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