Yahoo Finance Is Nobel Resources (CVE:NBLC) In A Good Position To Deliver On Growth Plans?
We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So, the natural question for Nobel Resources (CVE:NBLC) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Nobel Resources
How Long Is Nobel Resources' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2021, Nobel Resources had cash of CA$7.2m and no debt. Importantly, its cash burn was CA$8.3m over the trailing twelve months. That means it had a cash runway of around 10 months as of September 2021. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. The image below shows how its cash balance has been changing over the last few years.
How Easily Can Nobel Resources Raise Cash?
Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Nobel Resources' cash burn of CA$8.3m is about 16% of its CA$52m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
So, Should We Worry About Nobel Resources' Cash Burn?
Given it's an early stage company, we don't have a lot of data with which to judge Nobel Resources' cash burn. We would undoubtedly be more comfortable if it had reported some operating revenue. And it is worth keeping in mind that early stage companies are generally more risky than well established ones. For us, the key takeaway here is that its cash burn is worth monitoring closely because it may have to raise more capital in due course. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Nobel Resources (1 shouldn't be ignored!) that you should be aware of before investing here.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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