Business growth

We believe tungsten mining (ASX:TGN) can help drive business growth

Just because a company isn’t making money doesn’t mean the stock will go down. For example, although posted losses for many years after it listed, if you had bought and held the stock since 1999, you would have made a fortune. However, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.

So should Tungsten mining (ASX:TGN) Are shareholders 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. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.

Check out our latest analysis for Tungsten Mining

How long is Tungsten Mining’s cash trail?

A company’s cash trail is calculated by dividing its cash hoard by its cash burn. As of June 2022, Tungsten Mining had A$15 million in cash and no debt. Last year, its cash burn was A$5.0 million. That means it had a cash trail of around 2.9 years in June 2022. Arguably, that’s a conservative and reasonable runway length to have. The image below shows how his cash balance has changed over the past few years.

ASX: TGN Debt to Equity September 30, 2022

How is Tungsten Mining’s cash burn changing over time?

Although Tungsten Mining recorded revenues of A$21,000 last year, it actually earned no operating income. For us, that makes it a pre-revenue business, so we’ll look at its cash burn trajectory as an assessment of its cash burn situation. Over the past year, its cash burn has actually increased by 19%, suggesting that management is increasing its investments in future growth, but not too quickly. However, the company’s true cash trail will therefore be shorter than suggested above, if expenses continue to rise. Tungsten Mining makes us a bit nervous due to its lack of substantial operating revenue. We therefore generally prefer stocks from this list of stocks whose analysts predict growth.

Can tungsten mining raise more money easily?

Given its cash burn trajectory, Tungsten Mining shareholders may want to consider how easily it could raise more cash, despite its strong cash trail. Issuing new shares or going into debt are the most common ways for a listed company to raise more funds for its business. 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.

Tungsten Mining’s cash burn of A$5.0 million represents approximately 7.9% of its market capitalization of A$64 million. This is a small proportion, so we think the company would be able to raise more cash to fund growth, with a bit of dilution, or even just borrow money.

So should we be worried about Tungsten Mining’s cash burn?

It may already be obvious to you that we are relatively comfortable with the way Tungsten Mining is burning cash. For example, we think its cash trail suggests the business is on the right track. While its growing cash burn gives us reason to pause, the other metrics we’ve discussed in this article paint an overall positive picture. Looking at all the metrics in this article, together, we’re not worried about its cash burn rate; the company appears to be well above its medium-term spending needs. On another note, Tungsten Mining has 3 warning signs (and 2 that shouldn’t be ignored) that we think you should know about.

Sure Tungsten Mining may not be the best stock to buy. So you might want to see this free collection of companies offering a high return on equity, or this list of stocks that insiders buy.

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.

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