Companies Like C3 Metals (CVE:CCCM) Are In A Position To Invest In Growth

Just because a business does not make any money, does not mean that the stock will go down. 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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether C3 Metals (CVE:CCCM) shareholders should 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.

View our latest analysis for C3 Metals

How Long Is C3 Metals' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at May 2023, C3 Metals had cash of CA$4.0m and no debt. Looking at the last year, the company burnt through CA$2.4m. That means it had a cash runway of around 20 months as of May 2023. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.

How Is C3 Metals' Cash Burn Changing Over Time?

Because C3 Metals isn't currently generating revenue, we consider it an early-stage 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. Notably, its cash burn was actually down by 82% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. 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 C3 Metals Raise Cash?

While we're comforted by the recent reduction evident from our analysis of C3 Metals' cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.

C3 Metals' cash burn of CA$2.4m is about 7.6% of its CA$31m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About C3 Metals' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way C3 Metals is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. And even though its cash runway wasn't quite as impressive, it was still a positive. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 5 warning signs for C3 Metals (of which 2 are a bit concerning!) you should know about.

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)

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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.