We're Not Very Worried About Trillion Energy International's (CSE:TCF) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Trillion Energy International (CSE:TCF) 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.

Check out our latest analysis for Trillion Energy International

How Long Is Trillion Energy International's 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. As at September 2022, Trillion Energy International had cash of US$12m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through US$20m. So it had a cash runway of approximately 7 months from September 2022. Importantly, though, the one analyst we see covering the stock thinks that Trillion Energy International will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Trillion Energy International Growing?

One thing for shareholders to keep front in mind is that Trillion Energy International increased its cash burn by 1,090% in the last twelve months. But the silver lining is that operating revenue increased by 22% in that time. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Trillion Energy International Raise Cash?

Since Trillion Energy International has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. 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 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).

Since it has a market capitalisation of US$114m, Trillion Energy International's US$20m in cash burn equates to about 17% of its market value. 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 Trillion Energy International's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Trillion Energy International's revenue growth was relatively promising. It's clearly very positive to see that at least one analyst is forecasting the company will break even fairly soon. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Trillion Energy International's situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Trillion Energy International (of which 1 is potentially serious!) 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.