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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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for Peninsula Energy (ASX:PEN) shareholders is whether they should be concerned by its rate of 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
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When Might Peninsula Energy Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Peninsula Energy last reported its December 2024 balance sheet in March 2025, it had zero debt and cash worth US$45m. Looking at the last year, the company burnt through US$79m. That means it had a cash runway of around 7 months as of December 2024. Importantly, analysts think that Peninsula Energy will reach cashflow breakeven in around 20 months. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.
View our latest analysis for Peninsula Energy
How Is Peninsula Energy's Cash Burn Changing Over Time?
Peninsula Energy didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Its cash burn positively exploded in the last year, up 1,012%. Given that sharp increase in spending, the company's cash runway will shrink rapidly as it depletes its cash reserves. 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 Peninsula Energy Raise More Cash Easily?
Since its cash burn is moving in the wrong direction, Peninsula Energy shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. 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).