Yahoo Finance We Think Globex Mining Enterprises (TSE:GMX) Can Afford To Drive Business Growth
We can readily understand why investors are attracted to unprofitable companies. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Globex Mining Enterprises (TSE:GMX) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Globex Mining Enterprises
Does Globex Mining Enterprises Have A Long Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. Globex Mining Enterprises has such a small amount of debt that we'll set it aside, and focus on the CA$3.0m in cash it held at September 2019. Looking at the last year, the company burnt through CA$1.5m. Therefore, from September 2019 it had 2.0 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.
Is Globex Mining Enterprises's Revenue Growing?
Given that Globex Mining Enterprises actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Unfortunately, the last year has been a disappointment, with operating revenue dropping 34% during the period. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Globex Mining Enterprises has developed its business over time by checking this visualization of its revenue and earnings history.
Can Globex Mining Enterprises Raise More Cash Easily?
Since its revenue growth is moving in the wrong direction, Globex Mining Enterprises 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. 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.
Globex Mining Enterprises has a market capitalisation of CA$20m and burnt through CA$1.5m last year, which is 7.2% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
How Risky Is Globex Mining Enterprises's Cash Burn Situation?
On this analysis of Globex Mining Enterprises's cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue has us a bit worried. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. When you don't have traditional metrics like earnings per share and free cash flow to value a company, many are extra motivated to consider qualitative factors such as whether insiders are buying or selling shares. Please Note: Globex Mining Enterprises insiders have been trading shares, according to our data. Click here to check whether insiders have been buying or selling.
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)
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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