Yahoo Finance We Think TriStar Gold (CVE:TSG) Can Easily 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for TriStar Gold (CVE:TSG) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for TriStar Gold
Does TriStar Gold Have A Long 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. When TriStar Gold last reported its December 2023 balance sheet in April 2024, it had zero debt and cash worth US$3.8m. Importantly, its cash burn was US$91k over the trailing twelve months. So it had a very long cash runway of many years from December 2023. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.
How Is TriStar Gold's Cash Burn Changing Over Time?
TriStar Gold didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. The good news, from a balance sheet perspective, is that it actually reduced its cash burn by 94% in the last twelve months. While that hardly points to growth potential, it does at least suggest the company is trying to survive. Admittedly, we're a bit cautious of TriStar Gold due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Easily Can TriStar Gold Raise Cash?
While we're comforted by the recent reduction evident from our analysis of TriStar Gold's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Since it has a market capitalisation of US$26m, TriStar Gold's US$91k in cash burn equates to about 0.4% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
So, Should We Worry About TriStar Gold's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way TriStar Gold is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Taking a deeper dive, we've spotted 4 warning signs for TriStar Gold you should be aware of, and 1 of them is significant.
Of course TriStar Gold may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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.
