There’s no doubt that money can be made by owning shares of unprofitable companies. For example, while software-as-a-service company Salesforce.com has lost money for years while growing recurring revenue, you would have done very well if you had owned shares since 2005. But even though the successes are well known, investors should not ignore the many unprofitable companies that simply burn through all their money and collapse.
That should be the case Aurion Resources (CVE:AU) Are shareholders concerned about cash burn? In this article, we define cash burn as annual (negative) free cash flow, the amount of money a company spends annually to finance its growth. We start by comparing cash burn to cash reserves to calculate cash runway.
Check out our latest analysis for Aurion Resources
A cash runway is defined as the time it would take a company to run out of money if it continued to spend at its current rate. As of September 2024, Aurion Resources had CA$10 million in cash and was debt-free. Looking at the last year, the company burned through CA$3.6 million. Therefore, it had a cash runway of 2.9 years as of September 2024. That is undoubtedly a sensible and sensible runway length. The image below shows how the cash balance has changed in recent years.
Aurion Resources has not recorded any revenue in the past year, indicating that it is an early-stage company that is still developing its business. So while we can’t look at revenue to understand growth, we can look at how cash burn is changing to understand how expenses are trending over time. The 63% reduction in cash burn over the last twelve months may be good for protecting the balance sheet, but it hardly signals impending growth. However, it is clear that the crucial factor is whether the company will grow its business in the future. So you might want to take a look at how much the company is expected to grow in the coming years.
There’s no doubt that Aurion Resources’ rapidly declining cash burn is comforting, but even if it’s only hypothetical, it’s always worth wondering how easily it could raise more money to fund further growth. Generally, a publicly traded company can raise new cash by issuing stock or taking on debt. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise money and finance growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company going for another year (at the same burn rate).
Because it has a market capitalization of CA$91 million, Aurion Resources’ CA$3.6 million cash burn equates to approximately 4.0% of its market value. That’s a low percentage, so we think the company would be able to raise more money to fund growth, with a little dilution, or even just borrow some money.
It may already be clear to you that we’re relatively comfortable with the way Aurion Resources is burning its cash. In particular, we think the cash runway stands out as evidence that the company is well aware of its expenses. And even the reduction in cash burn was very encouraging. After considering a range of factors in this article, we’re fairly relaxed about its cash burn, as the company appears to be well-placed to continue funding its growth. After a deeper dive we saw it 5 warning signs for Aurion Resources things you need to be aware of, and two of them are potentially serious.
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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.
