We think Grande Portage Resources (CVE:GPG) needs to drive business growth cautiously

There is no question that money can be made by owning shares in unprofitable businesses. For example, although Amazon lost money for many years after going public, if you had bought and held stocks since 1999, you would have made a fortune. But the harsh reality is that many loss-making businesses have burned all their cash and gone bankrupt.

so should Grande Portage Resources (CVE:GPG) Shareholders Worried About Its Cash Burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount a company spends each year to fund its growth. Let’s start by examining business cash and its cash burn.

Check out our latest analysis for Grande Portage Resources

How long is Grande Portage Resources’ cash runway?

A company’s cash runway is calculated by dividing its cash reserves by its cash burn. When Grande Portage Resources last reported its balance sheet in July 2022, it had zero debt and a cash value of C$4 million. Looking back at last year, the company burned through $4.1 million. So it has about 12 months of cash runway starting in July 2022. That’s a fairly short cash runway, indicating that the company has to either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the graph below.

Debt Equity Historical Analysis

Debt Equity Historical Analysis

How has Grande Portage Resources’ cash burn changed over time?

Grande Portage Resources recorded no revenue last year, suggesting it’s an early-stage company that’s still growing its business. Still, we can examine its cash burn trajectory as part of our assessment of its cash burn. If that happens, the company’s cash burn would be 10.0% lower than last year, suggesting that management may be aware of the risk of them depleting their cash reserves. Admittedly, we’re cautious about Grande Portage Resources given its lack of significant operating income. As such, we generally prefer stocks on this list with analyst forecasts for growth.

How hard will it be for Grande Portage Resources to raise more cash for growth?

Despite its recent reduction in cash burn, shareholders should consider how easily Grande Portage Resources will be able to raise more cash going forward. Companies can raise capital through debt or equity. One of the main advantages of public 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 capitalization, we can get an idea of ​​how much shareholder dilution will occur if the company needs to raise enough cash to cover the next year’s cash burn.

Grande Portage Resources’ cash burn was C$4.1 million, about 15% of its C$28 million market cap. Therefore, we bet that the company will have no trouble raising more cash for growth, albeit at the expense of dilution.

How Dangerous Is Grande Portage Resources’ Cash Burn?

While its cash runway has us a little nervous, we have to mention that we think Grande Portage Resources’ cash burn is relatively promising relative to its market cap. While we don’t see a problem with its cash burn, the analysis we’ve done in this article does suggest that shareholders should carefully consider the potential cost of raising more capital going forward.On the other hand, we conducted an in-depth investigation of the company and determined that 5 Warning Signs of Grande Portage Resources (3 should not be overlooked!) You should be aware of this before investing.

certainly Grande Portage Resources Might Not Be the Best Stock. so you might want to see this free A collection of companies with high returns on equity, or this list of stocks insiders are buying.

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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.

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