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We can readily understand why investors are attracted to unprofitable companies. Indeed, Aldoro Resources (ASX:ARN) stock is up 336% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
In light of its strong share price run, we think now is a good time to investigate how risky Aldoro Resources' cash burn is. 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
How Long Is Aldoro Resources' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Aldoro Resources had cash of AU$1.3m and no debt. In the last year, its cash burn was AU$2.3m. Therefore, from December 2024 it had roughly 7 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.
View our latest analysis for Aldoro Resources
How Is Aldoro Resources' Cash Burn Changing Over Time?
Because Aldoro Resources isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. As it happens, the company's cash burn reduced by 42% over the last year, which suggests that management are mindful of the possibility of running out of cash. Admittedly, we're a bit cautious of Aldoro Resources due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Hard Would It Be For Aldoro Resources To Raise More Cash For Growth?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Aldoro Resources to raise more cash in the future. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).
Since it has a market capitalisation of AU$59m, Aldoro Resources' AU$2.3m in cash burn equates to about 3.9% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.