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We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 IMPACT Silver (CVE:IPT) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for IMPACT Silver
How Long Is IMPACT Silver's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When IMPACT Silver last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth CA$9.9m. Looking at the last year, the company burnt through CA$16m. Therefore, from June 2024 it had roughly 8 months of cash runway. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.
How Well Is IMPACT Silver Growing?
IMPACT Silver boosted investment sharply in the last year, with cash burn ramping by 69%. On the bright side, at least operating revenue was up 23% over the same period, giving some cause for hope. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how IMPACT Silver is building its business over time.
How Hard Would It Be For IMPACT Silver To Raise More Cash For Growth?
Since IMPACT Silver has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. 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).
IMPACT Silver's cash burn of CA$16m is about 29% of its CA$55m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.