There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Euro Manganese (CVE:EMN) has seen its share price rise 266% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given its strong share price performance, we think it's worthwhile for Euro Manganese shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
When Might Euro Manganese Run Out Of Money?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Euro Manganese last reported its balance sheet in June 2021, it had zero debt and cash worth CA$33m. Looking at the last year, the company burnt through CA$8.3m. That means it had a cash runway of about 4.0 years as of June 2021. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.
How Is Euro Manganese's Cash Burn Changing Over Time?
Because Euro Manganese isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn...
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