There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Euro Manganese (CVE:EMN) shareholders have done very well over the last year, with the share price soaring by 333%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
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. In June 2021, Euro Manganese had CA$33m in cash, and was debt-free. In the last year, its cash burn was CA$8.3m. So it had a cash runway of about 4.0 years from June 2021. A runway of this length affords the company the time and space it needs to develop the business. 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?
Euro Manganese didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how...
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