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There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Australian Gold and Copper (ASX:AGC) has seen its share price rise 139% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given its strong share price performance, we think it's worthwhile for Australian Gold and Copper shareholders to consider whether its cash burn is concerning. 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.
See our latest analysis for Australian Gold and Copper
How Long Is Australian Gold and Copper's 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. As at December 2024, Australian Gold and Copper had cash of AU$17m and no debt. In the last year, its cash burn was AU$5.2m. That means it had a cash runway of about 3.3 years as of December 2024. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
How Is Australian Gold and Copper's Cash Burn Changing Over Time?
While Australian Gold and Copper did record statutory revenue of AU$359k over the last year, it didn't have any revenue from operations. That means we consider it a pre-revenue business, and we will focus our growth analysis on cash burn, for now. The skyrocketing cash burn up 192% year on year certainly tests our nerves. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. Australian Gold and Copper makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Hard Would It Be For Australian Gold and Copper To Raise More Cash For Growth?
Given its cash burn trajectory, Australian Gold and Copper 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. Many companies end up issuing new shares to fund future 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.