We can easily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. However, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.
So the natural question for Mining in Eurasia (LON:EUA) shareholders is whether they should be concerned about its cash burn rate. 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. Let’s start with a review of the company’s cash flow, relative to its cash burn.
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When could Eurasia Mining run out of money?
A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of December 2021, Eurasia Mining had cash of £22m and debt so minimal that we can ignore it for the purposes of this analysis. Looking at last year, the company spent £6.1m in the UK. Therefore, as of December 2021, it had 3.6 years of cash trail. A track of this length provides the company with the time and space it needs to grow its business. Below you can see how its liquidity has changed over time.
How is Eurasia Mining growing?
Notably, Eurasia Mining has actually increased its cash burn very hard and fast over the past year, by 117%, which signifies a significant investment in the business. Of course, the truly skyrocketing revenue growth of 149% over this period may well justify the growth expenditure. Overall, we would say the company is improving over time. While the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analysts’ forecasts for the company.
How difficult would it be for Eurasia Mining to raise more cash for growth?
There’s no doubt that Eurasia Mining appears to be in a pretty good position to manage its cash burn, but even if it’s only hypothetical, it’s still worth considering how easily it could raise more cash. money to finance its growth. In general, a listed company can raise new funds by issuing shares or by going into debt. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise funds and finance their growth. By looking at a company’s cash burn relative to its market cap, we get insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.
Eurasia Mining’s cash burn of £6.1m is around 3.7% of its market capitalization of £164m. Since this is a rather small percentage, it would probably be very easy for the company to finance another year’s growth by issuing new shares to investors, or even taking out a loan.
Is Eurasia Mining’s cash consumption a concern?
As you can probably tell by now, we’re not too worried about Eurasia Mining’s cash burn. In particular, we believe that its revenue growth is proof that the company has its expenses under control. While we find its growing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we’re comfortable with. After considering the various metrics mentioned in this report, we’re pretty comfortable with how the company is spending its money, as it appears to be on track to meet its medium-term needs. On another note, Eurasia Mining has 3 warning signs (and 2 that are significant) that we think you should know about.
If you prefer to consult another company with better fundamentals, do not miss this free list of interesting companies, which have a high return on equity and low debt or this list of stocks which should all grow.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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