Yahoo Finance Mason Graphite (CVE:LLG) Is In A Good Position To Deliver On Growth Plans
We can readily understand why investors are attracted to unprofitable companies. By way of example, Mason Graphite (CVE:LLG) has seen its share price rise 249% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given its strong share price performance, we think it's worthwhile for Mason Graphite shareholders to consider whether its cash burn is concerning. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Check out our latest analysis for Mason Graphite
When Might Mason Graphite Run Out Of Money?
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. When Mason Graphite last reported its balance sheet in March 2021, it had zero debt and cash worth CA$21m. In the last year, its cash burn was CA$9.8m. So it had a cash runway of about 2.2 years from March 2021. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.
How Is Mason Graphite's Cash Burn Changing Over Time?
Mason Graphite didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. With cash burn dropping by 12% 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 Mason Graphite 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 Easily Can Mason Graphite Raise Cash?
While Mason Graphite is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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 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).
Mason Graphite's cash burn of CA$9.8m is about 12% of its CA$82m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
Is Mason Graphite's Cash Burn A Worry?
The good news is that in our view Mason Graphite's cash burn situation gives shareholders real reason for optimism. Not only was its cash burn relative to its market cap quite good, but its cash runway was a real positive. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking a deeper dive, we've spotted 2 warning signs for Mason Graphite you should be aware of, and 1 of them is a bit concerning.
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)
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.
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