Yahoo Finance We're Not Worried About Marimaca Copper's (TSE:MARI) Cash Burn
We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Marimaca Copper (TSE:MARI) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Marimaca Copper
When Might Marimaca Copper Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Marimaca Copper last reported its balance sheet in June 2023, it had zero debt and cash worth US$7.8m. In the last year, its cash burn was US$2.0m. So it had a cash runway of about 4.0 years from June 2023. Notably, however, analysts think that Marimaca Copper will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.
How Is Marimaca Copper's Cash Burn Changing Over Time?
Marimaca Copper 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. From a cash flow perspective, it's great to see the company's cash burn dropped by 92% over the last year. That might not be promising when it comes to business development, but it's good for the companies cash preservation. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Marimaca Copper Raise More Cash Easily?
While we're comforted by the recent reduction evident from our analysis of Marimaca Copper'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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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 US$279m, Marimaca Copper's US$2.0m in cash burn equates to about 0.7% 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 Marimaca Copper's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way Marimaca Copper is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. And even its cash burn relative to its market cap was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Separately, we looked at different risks affecting the company and spotted 2 warning signs for Marimaca Copper (of which 1 is potentially serious!) you should know about.
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)
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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.
