We're Not Worried About Rio2's (CVE:RIO) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. By way of example, Rio2 (CVE:RIO) has seen its share price rise 155% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Rio2's cash burn is too risky. 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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When Might Rio2 Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2025, Rio2 had US$48m in cash, and was debt-free. Importantly, its cash burn was US$7.1m over the trailing twelve months. That means it had a cash runway of about 6.8 years as of March 2025. Importantly, though, analysts think that Rio2 will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Rio2

How Is Rio2's Cash Burn Changing Over Time?

Because Rio2 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. Remarkably, it actually increased its cash burn by 793% in the last year. That kind of sharp increase in spending may pay off, but is generally considered quite risky. 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 Rio2 Raise Cash?

Given its cash burn trajectory, Rio2 shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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 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).

Rio2's cash burn of US$7.1m is about 1.5% of its US$467m 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 Rio2's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Rio2's cash burn. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Rio2 (1 shouldn't be ignored!) that you should be aware of before investing here.

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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.