We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for 1911 Gold (CVE:AUMB) shareholders is whether they should be concerned by its rate of 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). Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for 1911 Gold
How Long Is 1911 Gold's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2020, 1911 Gold had CA$9.0m in cash, and was debt-free. Looking at the last year, the company burnt through CA$4.2m. Therefore, from September 2020 it had 2.1 years of cash runway. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
How Well Is 1911 Gold Growing?
Some investors might find it troubling that 1911 Gold is actually increasing its cash burn, which is up 5.6% in the last year. Also concerning, operating revenue was actually down by 15% in that time. Considering both these factors, we're not particularly excited by its growth profile. In reality, this article only makes a short study of the company's growth data. This graph of historic earnings and revenue shows how 1911 Gold is building its business over time.
How Easily Can 1911 Gold Raise Cash?
Even though it seems like 1911 Gold is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.
1911 Gold has a market capitalisation of CA$25m and burnt through CA$4.2m last year, which is 17% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
So, Should We Worry About 1911 Gold's Cash Burn?
On this analysis of 1911 Gold's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. 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 1911 Gold's situation. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for 1911 Gold (1 doesn't sit too well with us!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
If you’re looking to trade 1911 Gold, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About TSXV:AUMB
Moderate with mediocre balance sheet.
