Aspire Mining (ASX:AKM) is in a good position to realize its growth plans

0

There is no doubt that it is possible to make money by owning shares of unprofitable companies. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. However, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.

So should vacuum mining (ASX: AKM) are shareholders worried about its consumption of cash? In this report, we will consider the company’s annual negative free cash flow, which we will now refer to as “cash burn”. Let’s start with a review of the company’s cash flow, relative to its cash burn.

See our latest analysis for Aspire Mining

How long is the Aspire Mining cash trail?

A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash burn. As of June 2020, Aspire Mining had A$41 million in cash and debt so minimal that we can ignore it for the purposes of this analysis. Looking at last year, the company spent A$5.1 million. Therefore, as of June 2020, it had 8.0 years of cash trail. Even though it’s just a measure of the company’s cash burn, the thought of such a long cash trail warms our bellies in a comforting way. You can see how his cash balance has changed over time in the image below.

debt-equity-history-analysis

How is Aspire Mining’s cash burn changing over time?

Aspire Mining has not recorded any revenue in the last year, indicating that it is a start-up company that is still expanding its business. Nonetheless, we can still look at its cash burn trajectory as part of our assessment of its cash burn situation. While that doesn’t excite us, the 36% reduction in cash burn year over year suggests the business can keep going for a while. Granted, we’re a bit cautious of Aspire Mining due to its lack of meaningful operating revenue. We prefer most stocks over this list of stocks that analysts expect to see grow.

How easily can Aspire Mining raise funds?

Even though it has recently reduced its cash burn, shareholders should still consider how easy it would be for Aspire Mining to raise more cash in the future. Issuing new shares or going into debt are the most common ways for a listed company to raise more funds for its business. Typically, a company will sell new stock on its own to raise cash and drive growth. We can compare a company’s cash burn to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund a year’s operations.

Aspire Mining’s cash burn of A$5.1 million represents about 10% of its market capitalization of A$49 million. Given this situation, it’s fair to say that the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

How risky is Aspire Mining’s cash burn situation?

It may already be obvious to you that we are relatively comfortable with the way Aspire Mining is burning through its cash. In particular, we think its cash trail stands out as proof that the company is on top of spending. His cash burn reduction wasn’t quite as good, but was still quite encouraging! Looking at all the metrics in this article, together, we’re not worried about its cash burn rate; the company appears to be well above its medium-term spending needs. Readers should have a good understanding of business risks before investing in any stock, and we have spotted 2 warning signs for Aspire Mining potential shareholders should consider before investing in a stock.

Sure Aspire Mining may not be the best stock to buy. So you might want to see this free set of companies with high return on equity, or this list of stocks that insiders buy.

This Simply Wall St article is general in nature. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

Share.

Comments are closed.