We Think Colonial Coal International (CVE:CAD) Can Easily Afford To Drive Business Growth

editorial-team@simplywallst.com (Simply Wall St)

Mon, Mar 17, 2025, 5:32 AM 3 min read

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 Colonial Coal International (CVE:CAD) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Colonial Coal International

When Might Colonial Coal International Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In January 2025, Colonial Coal International had CA$5.9m in cash, and was debt-free. In the last year, its cash burn was CA$1.7m. That means it had a cash runway of about 3.5 years as of January 2025. A runway of this length affords the company the time and space it needs to develop the business. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis — TSXV:CAD Debt to Equity History March 17th 2025

How Is Colonial Coal International's Cash Burn Changing Over Time?

Colonial Coal International didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. With cash burn dropping by 9.2% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. Admittedly, we're a bit cautious of Colonial Coal International due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Easily Can Colonial Coal International Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Colonial Coal International 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 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.

Colonial Coal International has a market capitalisation of CA$274m and burnt through CA$1.7m last year, which is 0.6% of the company's market value. 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.

So, Should We Worry About Colonial Coal International's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Colonial Coal International is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking an in-depth view of risks, we've identified 2 warning signs for Colonial Coal International that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.