We're Not Very Worried About Atlas Salt's (CVE:SALT) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. For example, Atlas Salt (CVE:SALT) shareholders have done very well over the last year, with the share price soaring by 187%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Atlas Salt's cash burn is. 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'.

View our latest analysis for Atlas Salt

Does Atlas Salt Have A Long Cash Runway?

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. When Atlas Salt last reported its balance sheet in September 2021, it had zero debt and cash worth CA$8.1m. In the last year, its cash burn was CA$1.3m. That means it had a cash runway of about 6.3 years as of September 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Is Atlas Salt's Cash Burn Changing Over Time?

Atlas Salt didn't record any revenue over the last year, indicating that it's an early stage company still developing its 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. Its cash burn positively exploded in the last year, up 1,685%. That kind of sharp increase in spending may pay off, but is generally considered quite risky. Admittedly, we're a bit cautious of Atlas Salt due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Hard Would It Be For Atlas Salt To Raise More Cash For Growth?

Given its cash burn trajectory, Atlas Salt shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Atlas Salt has a market capitalisation of CA$104m and burnt through CA$1.3m last year, which is 1.2% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Atlas Salt's Cash Burn?

As you can probably tell by now, we're not too worried about Atlas Salt's cash burn. For example, we think its cash runway suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking a deeper dive, we've spotted 5 warning signs for Atlas Salt you should be aware of, and 2 of them are concerning.

Of course Atlas Salt may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.