Companies Like Besra Gold (ASX:BEZ) Are In A Position To Invest In Growth

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Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Besra Gold (ASX:BEZ) shareholders 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. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.

Check out our latest analysis for Besra Gold

How Long Is Besra Gold’s Cash Runway?

A company’s cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2023, Besra Gold had cash of US$21m and no debt. Looking at the last year, the company burnt through US$7.0m. That means it had a cash runway of about 3.1 years as of December 2023. 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.

debt-equity-history-analysis

How Is Besra Gold’s Cash Burn Changing Over Time?

Besra Gold 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 the cash burn is changing to understand how expenditure is trending over time. In fact, it ramped its spending strongly over the last year, increasing cash burn by 104%. That sort of spending growth rate can’t continue for very long before it causes balance sheet weakness, generally speaking. Besra Gold makes us a little nervous due to its lack of substantial operating revenue. So we’d generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Besra Gold Raise More Cash Easily?

While Besra Gold does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company’s cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year’s cash burn.

Besra Gold’s cash burn of US$7.0m is about 26% of its US$27m market capitalisation. That’s fairly notable cash burn, so if the company had to sell shares to cover the cost of another year’s operations, shareholders would suffer some costly dilution.

How Risky Is Besra Gold’s Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Besra Gold’s cash runway was relatively promising. While we’re the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Besra Gold’s situation. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Besra Gold (1 is significant!) that you should be aware of before investing here.

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

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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.