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We can readily understand why investors are attracted to unprofitable companies. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether Mene (CVE:MENE) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Mene
Does Mene Have A Long Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at December 2023, Mene had cash of CA$8.3m and no debt. In the last year, its cash burn was CA$868k. That means it had a cash runway of about 9.5 years as of December 2023. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.
Is Mene's Revenue Growing?
Given that Mene actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 13%. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Mene is building its business over time.
How Easily Can Mene Raise Cash?
Given its problematic fall in revenue, Mene shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Mene's cash burn of CA$868k is about 1.6% of its CA$56m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.