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Just because a business does not make any money, does not mean that the stock will go down. 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 RecycLiCo Battery Materials (CVE:AMY) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for RecycLiCo Battery Materials
Does RecycLiCo Battery Materials Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When RecycLiCo Battery Materials last reported its July 2024 balance sheet in November 2024, it had zero debt and cash worth CA$17m. In the last year, its cash burn was CA$1.8m. So it had a cash runway of about 9.5 years from July 2024. 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. The image below shows how its cash balance has been changing over the last few years.
How Is RecycLiCo Battery Materials' Cash Burn Changing Over Time?
Because RecycLiCo Battery Materials 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. The 57% reduction in its cash burn over the last twelve months may be good for protecting the balance sheet but it hardly points to imminent growth. RecycLiCo Battery Materials makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Hard Would It Be For RecycLiCo Battery Materials To Raise More Cash For Growth?
While we're comforted by the recent reduction evident from our analysis of RecycLiCo Battery Materials' cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.