Grand Ocean Advanced Resources (HKG:65) Is In A Good Position To Deliver On Growth Plans

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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Grand Ocean Advanced Resources (HKG:65) shareholders 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.

See our latest analysis for Grand Ocean Advanced Resources

Does Grand Ocean Advanced Resources Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, Grand Ocean Advanced Resources had cash of HK$113m and no debt. In the last year, its cash burn was HK$18m. That means it had a cash runway of about 6.1 years as of June 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Grand Ocean Advanced Resources Growing?

Grand Ocean Advanced Resources managed to reduce its cash burn by 78% over the last twelve months, which suggests it's on the right flight path. And while hardly exciting, it was still good to see revenue growth of 16% during that time. We think it is growing rather well, upon reflection. In reality, this article only makes a short study of the company's growth data. You can take a look at how Grand Ocean Advanced Resources has developed its business over time by checking this visualization of its revenue and earnings history.

Can Grand Ocean Advanced Resources Raise More Cash Easily?

We are certainly impressed with the progress Grand Ocean Advanced Resources has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Since it has a market capitalisation of HK$164m, Grand Ocean Advanced Resources' HK$18m in cash burn equates to about 11% of its 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.

How Risky Is Grand Ocean Advanced Resources' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Grand Ocean Advanced Resources is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even though its revenue growth wasn't quite as impressive, it was still a positive. 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. 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 Grand Ocean Advanced Resources 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. 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.