We're Keeping An Eye On Condor Energies' (TSE:CDR) 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Condor Energies (TSE:CDR) shareholders should 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Condor Energies

How Long Is Condor Energies' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Condor Energies last reported its balance sheet in December 2022, it had zero debt and cash worth CA$3.8m. Looking at the last year, the company burnt through CA$4.9m. That means it had a cash runway of around 9 months as of December 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.

How Is Condor Energies' Cash Burn Changing Over Time?

In our view, Condor Energies doesn't yet produce significant amounts of operating revenue, since it reported just CA$3.1m in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. As it happens, the company's cash burn reduced by 53% over the last year, which suggests that management are mindful of the possibility of running out of cash. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Condor Energies is building its business over time.

Can Condor Energies Raise More Cash Easily?

While we're comforted by the recent reduction evident from our analysis of Condor Energies' cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive 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.

Condor Energies' cash burn of CA$4.9m is about 17% of its CA$28m 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.

How Risky Is Condor Energies' Cash Burn Situation?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Condor Energies' cash burn reduction was relatively promising. 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. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Condor Energies (2 are significant!) that you should be aware of before investing here.

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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.