We're Not Very Worried About Filo Mining's (TSE:FIL) Cash Burn Rate

We can readily understand why investors are attracted to unprofitable companies. By way of example, Filo Mining (TSE:FIL) has seen its share price rise 584% over the last year, delighting many shareholders. 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 notwithstanding the buoyant share price, we think it's well worth asking whether Filo Mining's cash burn is too risky. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Filo Mining

How Long Is Filo Mining's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2021, Filo Mining had CA$23m in cash, and was debt-free. In the last year, its cash burn was CA$21m. Therefore, from September 2021 it had roughly 13 months of cash runway. Notably, analysts forecast that Filo Mining will break even (at a free cash flow level) in about 5 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.

How Is Filo Mining's Cash Burn Changing Over Time?

Because Filo Mining isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Cash burn was pretty flat over the last year, which suggests that management are holding spending steady while the business advances its strategy. While the past is always worth studying, it is the future that matters most of all. 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 Filo Mining Raise Cash?

While its cash burn is only increasing slightly, Filo Mining shareholders should still consider the potential need for further cash, down the track. 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.

Filo Mining's cash burn of CA$21m is about 1.2% of its CA$1.8b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Filo Mining's Cash Burn A Worry?

On this analysis of Filo Mining's cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, Filo Mining has 6 warning signs (and 3 which are concerning) we think you should know about.

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.