- Metals and Mining
We're Interested To See How Mandrake Resources (ASX:MAN) Uses Its Cash Hoard To Grow
Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 should Mandrake Resources (ASX:MAN) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Mandrake Resources
Does Mandrake Resources Have A Long 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, Mandrake Resources had cash of AU$16m and no debt. Importantly, its cash burn was AU$1.2m over the trailing twelve months. So it had a very long cash runway of many years from June 2022. 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. Depicted below, you can see how its cash holdings have changed over time.
How Is Mandrake Resources' Cash Burn Changing Over Time?
Because Mandrake Resources 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. Even though it doesn't get us excited, the 25% reduction in cash burn year on year does suggest the company can continue operating for quite some time. Mandrake Resources 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 Hard Would It Be For Mandrake Resources To Raise More Cash For Growth?
While Mandrake Resources 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. 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. 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.
Mandrake Resources has a market capitalisation of AU$29m and burnt through AU$1.2m last year, which is 4.0% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
How Risky Is Mandrake Resources' Cash Burn Situation?
It may already be apparent to you that we're relatively comfortable with the way Mandrake Resources is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking a deeper dive, we've spotted 4 warning signs for Mandrake Resources you should be aware of, and 2 of them shouldn't be ignored.
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.
Mandrake Resources Limited engages in the exploration and evaluation of mineral resources.
Flawless balance sheet and overvalued.