Business growth

We believe Aurion Resources (CVE:AU) can afford to drive the company’s growth

Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.

So the natural question for Resources of Aurons (CVE: AU) shareholders is whether they should worry about its cash burn rate. 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 will determine its cash trail by comparing its cash consumption with its cash reserves.

See our latest analysis for Aurion Resources

Does Aurion Resources have a long cash trail?

A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of June 2022, Aurion Resources had cash of C$19 million and no debt. Importantly, its cash burn was C$7.7 million over the last twelve months. So there was a cash trail of around 2.5 years from June 2022. Crucially, the only analyst we see covering the stock thinks Aurion Resources will break even in 4 years. This means that unless the company reduces its cash burn quickly, it may well be looking to raise more cash. The image below shows how his cash balance has changed over the past few years.

debt-equity-history-analysis

How is Aurion Resources cash burn changing over time?

Aurion Resources has not recorded any revenue over the past year, indicating that it is an early-stage company that is still expanding its business. Nonetheless, we can still look at its cash burn trajectory as part of our assessment of its cash burn situation. With cash burn down 15%, it appears management feels the company is spending enough to move its business plans forward at an appropriate pace. While the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Aurion Resources raise more money easily?

Even though it has recently reduced its cash burn, shareholders should still wonder how easy it would be for Aurion Resources to raise more cash in the future. In general, a listed company can raise new funds by issuing shares or by going into debt. Many companies end up issuing new shares to fund their future growth. By looking at a company’s cash burn relative to its market cap, we get insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.

Aurion Resources has a market capitalization of C$51 million and burned C$7.7 million last year, or 15% of the company’s market value. As a result, we risk the company being able to raise more cash for growth without too much trouble, but at the cost of some dilution.

Is Aurion Resources’ cash burn a concern?

Aurion Resources appears to be in fairly good shape as far as its cash burn situation is concerned. Not only was its cash burn relative to its market capitalization quite good, but its cash trail was a real plus. Shareholders can rejoice that at least one analyst predicts it will break even. Given all the factors discussed in this article, we’re not overly concerned about the company’s cash burn, although we think shareholders should keep an eye on how it’s doing. On a different note, we conducted a thorough investigation of the company and identified 4 warning signs for Aurion Resources (2 are potentially serious!) which you should be aware of before investing here.

If you prefer to consult another company with better fundamentals, do not miss this free list of interesting companies, which have HIGH return on equity and low debt Where this list of actions that should all increase.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Join a Paid User Research Session
You will receive a $30 Amazon Gift Card for 1 hour of your time while helping us create better investment tools for individual investors like you. register here