Yahoo Finance We're A Little Worried About Glacier Lake Resources's (CVE:GLI) Cash Burn Rate
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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Glacier Lake Resources (CVE:GLI) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Glacier Lake Resources
How Long Is Glacier Lake Resources's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2019, Glacier Lake Resources had cash of CA$4.7k and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through CA$320k. That means it had a cash runway of under two months as of June 2019. It's extremely surprising to us that the company has allowed its cash runway to get that short! The image below shows how its cash balance has been changing over the last few years.
How Is Glacier Lake Resources's Cash Burn Changing Over Time?
Because Glacier Lake Resources isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. The 74% reduction in its cash burn over the last twelve months could be interpreted as a sign that management are worried about running out of cash. Admittedly, we're a bit cautious of Glacier Lake Resources 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 Glacier Lake Resources Raise Cash?
While we're comforted by the recent reduction evident from our analysis of Glacier Lake Resources'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 to 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.
Glacier Lake Resources's cash burn of CA$320k is about the same as its market capitalisation of CA$320k. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.
Is Glacier Lake Resources's Cash Burn A Worry?
There are no prizes for guessing that we think Glacier Lake Resources's cash burn is a bit of a worry. In particular, we think its cash runway suggests it isn't in a good position to keep funding growth. But the silver lining was its cash burn reduction, which was encouraging. Looking at the metrics in this article all together, we consider its cash burn situation to be rather dangerous, and likely to cost shareholders one way or the other. While it's important to consider hard data like the metrics discussed above, many investors would also be interested to note that Glacier Lake Resources insiders have been trading shares in the company. Click here to find out if they 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 companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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