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Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Kenorland Minerals (CVE:KLD) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
How Long Is Kenorland Minerals' Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at September 2024, Kenorland Minerals had cash of CA$31m and no debt. In the last year, its cash burn was CA$18m. That means it had a cash runway of around 20 months as of September 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.
See our latest analysis for Kenorland Minerals
How Well Is Kenorland Minerals Growing?
It was fairly positive to see that Kenorland Minerals reduced its cash burn by 21% during the last year. Unfortunately, however, operating revenue declined by 9.8% during the period. In light of the data above, we're fairly sanguine about the business growth trajectory. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how Kenorland Minerals is building its business over time.
Can Kenorland Minerals Raise More Cash Easily?
Kenorland Minerals seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.