We're Keeping An Eye On Kenorland Minerals' (CVE:KLD) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 Kenorland Minerals (CVE:KLD) shareholders should be worried about its cash burn. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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When Might Kenorland Minerals Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In September 2024, Kenorland Minerals had CA$31m in cash, and was debt-free. Importantly, its cash burn was CA$18m over the trailing twelve months. Therefore, from September 2024 it had roughly 20 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

View our latest analysis for Kenorland Minerals

How Well Is Kenorland Minerals Growing?

We reckon the fact that Kenorland Minerals managed to shrink its cash burn by 21% over the last year is rather encouraging. Unfortunately, however, operating revenue declined by 9.8% during the period. 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. You can take a look at how Kenorland Minerals has developed its business over time by checking this visualization of its revenue and earnings history .

Can Kenorland Minerals Raise More Cash Easily?

Kenorland Minerals seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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. 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.

Kenorland Minerals has a market capitalisation of CA$112m and burnt through CA$18m last year, which is 16% 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.

Is Kenorland Minerals' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Kenorland Minerals' cash runway was relatively promising. 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 Kenorland Minerals' situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Kenorland Minerals that potential shareholders should take into account before putting money into a stock.

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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.