Yahoo Finance Is Minaurum Gold (CVE:MGG) In A Good Position To Deliver On Growth Plans?
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 should Minaurum Gold (CVE:MGG) shareholders 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for Minaurum Gold
How Long Is Minaurum Gold's 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 January 2020, Minaurum Gold had cash of CA$3.2m and no debt. Looking at the last year, the company burnt through CA$5.7m. So it had a cash runway of approximately 7 months from January 2020. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
How Is Minaurum Gold's Cash Burn Changing Over Time?
Minaurum Gold 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. Over the last year its cash burn actually increased by 19%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Minaurum Gold makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Hard Would It Be For Minaurum Gold To Raise More Cash For Growth?
Since its cash burn is moving in the wrong direction, Minaurum Gold shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. 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.
Since it has a market capitalisation of CA$132m, Minaurum Gold's CA$5.7m in cash burn equates to about 4.3% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
So, Should We Worry About Minaurum Gold's Cash Burn?
On this analysis of Minaurum Gold's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Summing up, we think the Minaurum Gold's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 6 warning signs for Minaurum Gold you should be aware of, and 3 of them are a bit concerning.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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