We're Not Very Worried About Lunnon Metals' (ASX:LM8) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Lunnon Metals (ASX:LM8) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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When Might Lunnon Metals Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Lunnon Metals last reported its December 2024 balance sheet in March 2025, it had zero debt and cash worth AU$19m. In the last year, its cash burn was AU$7.8m. That means it had a cash runway of about 2.5 years as of December 2024. Importantly, though, the one analyst we see covering the stock thinks that Lunnon Metals will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.

View our latest analysis for Lunnon Metals

How Is Lunnon Metals' Cash Burn Changing Over Time?

Because Lunnon Metals isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 52% over the last year suggests some degree of prudence. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Lunnon Metals Raise Cash?

There's no doubt Lunnon Metals' rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Lunnon Metals' cash burn of AU$7.8m is about 16% of its AU$49m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Lunnon Metals' Cash Burn?

As you can probably tell by now, we're not too worried about Lunnon Metals' cash burn. For example, we think its cash runway suggests that the company is on a good path. On this analysis its cash burn relative to its market cap was its weakest feature, but we are not concerned about it. One real positive is that at least one analyst is forecasting that the company will reach breakeven. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking a deeper dive, we've spotted 5 warning signs for Lunnon Metals you should be aware of, and 2 of them are potentially serious.

Of course Lunnon Metals may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.