Is Eurobattery Minerals (NGM:BAT) 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, 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Eurobattery Minerals (NGM:BAT) shareholders is whether they should be concerned by its rate of 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). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Eurobattery Minerals

How Long Is Eurobattery Minerals' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2021, Eurobattery Minerals had cash of kr17m and no debt. Looking at the last year, the company burnt through kr24m. So it had a cash runway of approximately 9 months from September 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.

How Hard Would It Be For Eurobattery Minerals To Raise More Cash For Growth?

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.

Eurobattery Minerals' cash burn of kr24m is about 12% of its kr198m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Eurobattery Minerals' Cash Burn A Worry?

Given it's an early stage company, we don't have a lot of data with which to judge Eurobattery Minerals' cash burn. Certainly, we'd be more confident in the stock if it was generating operating revenue. And it is worth keeping in mind that early stage companies are generally more risky than well established ones. For us, the key takeaway here is that its cash burn is worth monitoring closely because it may have to raise more capital in due course. Taking a deeper dive, we've spotted 4 warning signs for Eurobattery Minerals you should be aware of, and 3 of them are a bit concerning.

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)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.