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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, NorthIsle Copper and Gold (CVE:NCX) shareholders have done very well over the last year, with the share price soaring by 113%. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
In light of its strong share price run, we think now is a good time to investigate how risky NorthIsle Copper and Gold's cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for NorthIsle Copper and Gold
Does NorthIsle Copper and Gold Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, NorthIsle Copper and Gold had cash of CA$5.8m and no debt. In the last year, its cash burn was CA$8.2m. So it had a cash runway of approximately 9 months from June 2024. 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 Is NorthIsle Copper and Gold's Cash Burn Changing Over Time?
NorthIsle Copper and Gold 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. Over the last year its cash burn actually increased by a very significant 56%. While this spending increase is no doubt intended to drive growth, if the trend continues the company's cash runway will shrink very quickly. NorthIsle Copper and Gold makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Easily Can NorthIsle Copper and Gold Raise Cash?
Since its cash burn is moving in the wrong direction, NorthIsle Copper and Gold 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).