Companies Like Great Bear Royalties (CVE:GBRR) Can Afford To Invest In Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Great Bear Royalties (CVE:GBRR) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Great Bear Royalties

How Long Is Great Bear Royalties' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Great Bear Royalties last reported its balance sheet in December 2020, it had zero debt and cash worth CA$4.5m. Importantly, its cash burn was CA$104k over the trailing twelve months. That means it had a cash runway of very many years as of December 2020. Notably, however, the one analyst we see covering the stock thinks that Great Bear Royalties will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Easily Can Great Bear Royalties Raise Cash?

Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Great Bear Royalties' cash burn of CA$104k is about 0.1% of its CA$91m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Great Bear Royalties' Cash Burn A Worry?

Given it's an early stage company, we don't have a lot of data with which to judge Great Bear Royalties' cash burn. Certainly, we'd be more confident in the stock if it was generating operating revenue. However, it is fair to say that its cash runway gave us comfort. Summing up, its cash burn doesn't bother us and we're excited to see what kind of growth it can achieve with its current cash hoard. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 3 warning signs for Great Bear Royalties that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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. 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.
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