We're Interested To See How Minerals 260 (ASX:MI6) Uses Its Cash Hoard To Grow

We can readily understand why investors are attracted to unprofitable companies. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Minerals 260 (ASX:MI6) 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'. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Minerals 260

When Might Minerals 260 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 Minerals 260 last reported its balance sheet in June 2022, it had zero debt and cash worth AU$23m. Importantly, its cash burn was AU$5.2m over the trailing twelve months. That means it had a cash runway of about 4.5 years as of June 2022. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

Can Minerals 260 Raise More Cash Easily?

Companies can raise capital through either debt or equity. 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.

Minerals 260 has a market capitalisation of AU$81m and burnt through AU$5.2m last year, which is 6.4% 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 Minerals 260's Cash Burn Situation?

Because Minerals 260 is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. Certainly, we'd be more confident in the stock if it was generating operating revenue. Having said that, we can say that its cash runway was a real positive. Summing up, its cash burn doesn't bother us and we're excited to see what kind of growth it can achieve with its current cash hoard. On another note, Minerals 260 has 2 warning signs (and 1 which is significant) we think you should know about.

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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.