Even if a business loses money, shareholders have the potential to make money if they buy a good business at the right price. For example, while Amazon lost money for many years after going public, if you had bought and held these stocks since 1999, you would have made a fortune. But while history praises these rare successes, those that fail are often forgotten. Who remembers Pets.com?
so it should Silver Mountain Resources (CVE:AGMR) Shareholders Worried About Burning Money? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We’ll first compare its cash burn to its cash reserves to calculate its cash runway.
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When will Yinshan Resources run out of money?
Cash runway is defined as the length of time it would take for a company to run out of funds if it continues to spend at its current cash burn rate. When Silver Mountain Resources last reported its balance sheet in June 2022, it had zero debt and cash and was worth $17 million. Looking back at last year, the company burned through $7.4 million. So it has a cash runway of about 2.3 years from June 2022. It can be said that this is a prudent and reasonable runway length. As you can see in the chart below, you can see how its cash holdings have changed over time.
How has Silver Mountain Resources’ cash burn changed over time?
Since Silver Mountain Resources is not currently generating revenue, we consider this an early stage business. So, while we can’t understand growth through sales, we can understand how spending is trending over time by looking at changes in cash burn. Notably, its cash burn actually increased by 348% last year. As this spending grows, its cash runway will rapidly shorten as it increases its burn rate while using cash. Admittedly, we are cautious about Yinshan Resources due to its lack of significant operating income. We prefer most of the stocks on this list of stocks analysts expect to see growth.
Can Silver Mountain Resources easily raise more cash?
While Silver Mountain Resources does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead of time when the company might need to raise more cash. Issuing new stock or taking on debt are the most common ways for public companies to raise more money for their business. Many companies end up issuing new shares to fund future growth. We can compare a company’s cash burn to its market capitalization to see how many new shares a company must issue to fund a year of operations.
With its market cap of $48 million, Silver Mountain Resources’ $7.4 million cash burn equates to about 16% of its market cap. Given this situation, it’s fair to say the company won’t have much trouble raising more cash for growth, but shareholders will be diluted to some extent.
So, should we be worried about Silver Mountain Resources’ cash burn?
In our analysis of Silver Mountain Resources’ cash burn, we find its cash runway reassuring, while its increasing cash burn worries us a bit. A company that burns money is always on the riskier side, but after considering all the factors discussed in this short article, we’re not too concerned about its burn rate.Taking a deeper dive, we found 4 Warning Signs of Silver Mountain Resources You should know that 2 of them are a bit concerning.
certainly Silver Mountain Resources Might Not Be the Best Stock. so you might want to see this free A collection of companies with high ROEs, or a list of stocks insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based solely on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It does not constitute advice to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to bring you long-term focused analytics driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Wall Street has no positions in any of the stocks mentioned.