We're Keeping An Eye On Refinaria de Petróleos de Manguinhos' (BVMF:RPMG3) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Refinaria de Petróleos de Manguinhos (BVMF:RPMG3) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Refinaria de Petróleos de Manguinhos

How Long Is Refinaria de Petróleos de Manguinhos' Cash Runway?

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. In September 2024, Refinaria de Petróleos de Manguinhos had R$512k in cash, and was debt-free. Importantly, its cash burn was R$863k over the trailing twelve months. That means it had a cash runway of around 7 months as of September 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

Is Refinaria de Petróleos de Manguinhos' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Refinaria de Petróleos de Manguinhos actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Although it's hardly brilliant growth, it's good to see the company grew revenue by 17% in the last year. In reality, this article only makes a short study of the company's growth data. You can take a look at how Refinaria de Petróleos de Manguinhos has developed its business over time by checking this visualization of its revenue and earnings history.

Can Refinaria de Petróleos de Manguinhos Raise More Cash Easily?

Notwithstanding Refinaria de Petróleos de Manguinhos' revenue growth, it is still important to consider how it could raise more money, if it needs to. 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 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.

Since it has a market capitalisation of R$179m, Refinaria de Petróleos de Manguinhos' R$863k in cash burn equates to about 0.5% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Refinaria de Petróleos de Manguinhos' Cash Burn Situation?

On this analysis of Refinaria de Petróleos de Manguinhos' cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Refinaria de Petróleos de Manguinhos (of which 2 shouldn't be ignored!) you should know about.

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.