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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, 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Coelacanth Energy (CVE:CEI) shareholders is whether they should be concerned by its rate of 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 Coelacanth Energy
How Long Is Coelacanth Energy's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Coelacanth Energy had CA$58m in cash, and was debt-free. In the last year, its cash burn was CA$70m. So it had a cash runway of approximately 10 months from June 2024. 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.
How Well Is Coelacanth Energy Growing?
Notably, Coelacanth Energy actually ramped up its cash burn very hard and fast in the last year, by 131%, signifying heavy investment in the business. It seems likely that the vociferous operating revenue growth of 129% during that time may well have given management confidence to ramp investment. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Coelacanth Energy Raise Cash?
Given the trajectory of Coelacanth Energy's cash burn, many investors will already be thinking about how it might raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.