Is Jindalee Lithium (ASX:JLL) In A Good Position To Deliver On Growth Plans?

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 should Jindalee Lithium (ASX:JLL) shareholders be worried about its cash burn? 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Jindalee Lithium

How Long Is Jindalee Lithium's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2023, Jindalee Lithium had cash of AU$3.3m and no debt. In the last year, its cash burn was AU$5.2m. Therefore, from December 2023 it had roughly 8 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Jindalee Lithium's Cash Burn Changing Over Time?

Whilst it's great to see that Jindalee Lithium has already begun generating revenue from operations, last year it only produced AU$84k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. It's possible that the 18% reduction in cash burn over the last year is evidence of management tightening their belts as cash reserves deplete. Jindalee Lithium makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can Jindalee Lithium Raise Cash?

While Jindalee Lithium is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Jindalee Lithium has a market capitalisation of AU$40m and burnt through AU$5.2m last year, which is 13% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Jindalee Lithium's Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Jindalee Lithium's cash burn relative to its market cap was relatively promising. Summing up, we think the Jindalee Lithium's cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Jindalee Lithium (3 are potentially serious!) that you should be aware of before investing here.

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.