We're Interested To See How Kingsrose Mining (ASX:KRM) Uses Its Cash Hoard To Grow

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Kingsrose Mining (ASX:KRM) shareholders 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Kingsrose Mining

How Long Is Kingsrose Mining's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at June 2022, Kingsrose Mining had cash of AU$28m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through AU$5.1m. Therefore, from June 2022 it had 5.4 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

Can Kingsrose Mining Raise More Cash Easily?

Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.

Kingsrose Mining has a market capitalisation of AU$44m and burnt through AU$5.1m last year, which is 12% 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 Kingsrose Mining's Cash Burn A Worry?

Because Kingsrose Mining is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. We would undoubtedly be more comfortable if it had reported some operating revenue. However, it is fair to say that its cash runway gave us comfort. In conclusion, we don't see why investors should be concerned with its cash burn, at least for some time. On another note, Kingsrose Mining has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.