Advertisement
Australia markets closed
  • ALL ORDS

    8,118.30
    -1.90 (-0.02%)
     
  • AUD/USD

    0.6658
    -0.0011 (-0.17%)
     
  • ASX 200

    7,848.10
    -3.60 (-0.05%)
     
  • OIL

    77.72
    -0.94 (-1.20%)
     
  • GOLD

    2,418.90
    -7.00 (-0.29%)
     
  • Bitcoin AUD

    105,107.25
    -1,441.01 (-1.35%)
     
  • CMC Crypto 200

    1,499.95
    -26.47 (-1.74%)
     

We're Not Worried About European Metals Holdings' (ASX:EMH) Cash Burn

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether European Metals Holdings (ASX:EMH) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for European Metals Holdings

How Long Is European Metals Holdings' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2023, European Metals Holdings had AU$8.9m in cash, and was debt-free. Looking at the last year, the company burnt through AU$1.8m. That means it had a cash runway of about 4.8 years as of June 2023. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Is European Metals Holdings' Cash Burn Changing Over Time?

While European Metals Holdings did record statutory revenue of AU$1.1m over the last year, it didn't have any revenue from operations. To us, that makes it a pre-revenue company, so we'll look to its cash burn trajectory as an assessment of its cash burn situation. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 28% over the last year suggests some degree of prudence. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can European Metals Holdings Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for European Metals Holdings to raise more cash in the future. 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. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

ADVERTISEMENT

European Metals Holdings' cash burn of AU$1.8m is about 3.0% of its AU$62m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is European Metals Holdings' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way European Metals Holdings is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. On another note, European Metals Holdings has 5 warning signs (and 2 which don't sit too well with us) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.