There is no doubt that you can make money by owning shares of unprofitable companies. For example, if you’ve owned the stock since 2005, Salesforce.com, a software-as-a-service business, has lost money for years while its recurring revenue has grown, but if you’ve owned the stock since 2005, it’s certainly a very It would have worked fine. Nevertheless, only a fool would ignore the risk of a loss-making company running out of cash quickly.
So the obvious question is, premier american uranium (CVE:PUR) shareholders should be concerned about its cash burn rate. In this article, we define cash burn as annual (negative) free cash flow. This is the amount of money a company spends each year to fund growth. Let’s start by examining the company’s cash compared to its cash burn.
Check out our latest analysis for Premier American Uranium.
How long is Premier American Uranium’s cash runway?
A company’s cash runway can be calculated by dividing the amount of cash it holds by the rate at which it spends that cash. As of June 2023, Premier American Uranium had cash of CA$582,000 and no debt. Looking at last year, the company spent CAD 954,000. In other words, the company’s cash runway was approximately 7 months from June 2023. This is a very short cash runway, indicating that the company needs to either reduce its annual cash burn or replenish its cash position. You can see how its cash holdings have changed over time, as shown below.
Could Premier American Uranium easily raise more capital?
Companies can raise capital through debt or equity. One of the main advantages of publicly traded companies is that they can sell stock to investors to raise cash and fund growth. By looking at a company’s cash burn compared to its market capitalization, insight into how much shareholders will be diluted if the company needs to raise enough cash to cover another year’s cash burn. It can be obtained.
Premier American Uranium’s cash burn of CA$954,000 represents about 2.8% of the company’s market capitalization of CA$35 million. So it will almost certainly be able to easily raise cash by borrowing a small amount or issuing a few shares to fund growth next year.
How dangerous is America’s Premier Uranium cash burn situation?
Given that the company is an early-stage company, we don’t have much data to judge Premier American Uranium’s cash burn. Certainly, we would have more confidence in the stock if it was generating operating revenue. Having said that, I would say that the cash burn was very positive compared to the market capitalization. So while we’re not too worried about its cash burn at the moment, we think shareholders will need to monitor it closely. On a different note, Premier American Uranium is 5 warning signs (and two important ones) that I think you should know about.
of course, You may find a great investment if you look elsewhere. So take a look at this free A list of companies that insiders are buying, and this list of growth stocks (based on analyst forecasts).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
