We're Keeping An Eye On Arizona Sonoran Copper's (TSE:ASCU) 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Arizona Sonoran Copper (TSE:ASCU) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). 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 Arizona Sonoran Copper

How Long Is Arizona Sonoran Copper'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. When Arizona Sonoran Copper last reported its balance sheet in June 2023, it had zero debt and cash worth US$24m. Importantly, its cash burn was US$33m over the trailing twelve months. Therefore, from June 2023 it had roughly 9 months of cash runway. Importantly, analysts think that Arizona Sonoran Copper will reach cashflow breakeven in 4 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Arizona Sonoran Copper's Cash Burn Changing Over Time?

Arizona Sonoran Copper didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. As it happens, the company's cash burn reduced by 13% over the last year, which suggests that management may be mindful of the risks of their depleting cash reserves. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Arizona Sonoran Copper Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Arizona Sonoran Copper to raise more cash in the future. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Arizona Sonoran Copper has a market capitalisation of US$122m and burnt through US$33m last year, which is 27% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

So, Should We Worry About Arizona Sonoran Copper's Cash Burn?

On this analysis of Arizona Sonoran Copper's cash burn, we think its cash burn reduction was reassuring, while its cash runway has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Summing up, we think the Arizona Sonoran Copper's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 5 warning signs for Arizona Sonoran Copper you should be aware of, and 3 of them are a bit concerning.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.