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We can readily understand why investors are attracted to unprofitable companies. 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 Maple Gold Mines (CVE:MGM) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
When Might Maple Gold Mines Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2024, Maple Gold Mines had CA$7.9m in cash, and was debt-free. Importantly, its cash burn was CA$4.3m over the trailing twelve months. That means it had a cash runway of around 22 months as of December 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.
Check out our latest analysis for Maple Gold Mines
How Is Maple Gold Mines' Cash Burn Changing Over Time?
Because Maple Gold Mines 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. Even though it doesn't get us excited, the 31% reduction in cash burn year on year does suggest the company can continue operating for quite some time. Maple Gold Mines 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 Easily Can Maple Gold Mines Raise Cash?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Maple Gold Mines to raise more cash in the future. 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 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.