February 14, 2025
We are not too worried about Bello Sun Mining’s (TSE:BSX) cash burn rate

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We can easily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while growing recurring revenue, if you’ve owned the shares since 2005, you may have done really well. Still, only a fool would ignore the risk that a loss-making company runs out of cash too quickly.

It should happen like this only Bello Sun Mining (TSE:BSX) shareholders worried about its cash crunch? For the purposes of this article, we’ll define cash burn as the amount of cash a company is spending each year to fund its growth (also known as its negative free cash flow). We’ll start by comparing its cash outlays with its cash reserves to calculate its cash runway.

Check out our latest analysis for Bello Sun Mining

When can Belo Sun Mining run out of money?

You can calculate a company’s cash flow by dividing the amount of cash it has on hand by the rate at which it spends that cash. As of June 2023, Belo Sun Mining had CA$18m in cash and no debt. Looking at the previous year, the company lost CA$7.2m. So it had a cash runway of about 2.5 years from June 2023. That’s good, giving the company a few years to grow its business. You can see how its cash balance has changed over time in the image below.

Debt-Equity-History-Analysis

How has Belo Sun Mining’s cash burn been changing over time?

Belo Sun Mining did not report any revenue last year, indicating that it is an early-stage company that is still developing its business. Nevertheless, we can still examine its cash burn trajectory as part of an assessment of its cash burn position. With the cash burn rate rising 18% last year, it looks like the company is increasing investment in the business over time. This isn’t necessarily a bad thing, but investors should be mindful of the fact that this will shrink cash flow. However, clearly, the key factor is whether or not the company will continue to grow its business going forward. So you’ll want to see how much growth the company is expected to generate over the next few years.

How hard will it be for Belo Sun Mining to raise more cash for growth?

Given its cash burn trajectory, shareholders of Belo Sun Mining may want to consider how easily it can raise more cash, despite its solid cash runway. Typically, a listed business can raise fresh cash by issuing shares or taking on debt. Generally, a business will sell new shares to raise cash and drive growth. We can compare a company’s cash outlays to its market capitalization to determine how many new shares a company would need to issue for one year of operations.

Belo Sun Mining’s cash outlay of CA$7.2m represents about 25% of its CA$29m market capitalization. That’s a pretty significant cash loss, so if the company had to sell shares to cover the costs of operating for another year, shareholders would suffer some costly losses.

So, should we worry about Belo Sun Mining’s cash burn?

Even though its mounting cash losses bother us a bit, we feel compelled to mention that we thought Belo Sun Mining’s cash runway was relatively promising. Although we’re investors who are always concerned about the risks associated with companies that burn cash, the metrics we’ve discussed in this article make us feel relatively comfortable about Belo Sun Mining’s position. Secondly, Belo Sun Mining has 5 warning signs (And 3 That Make Us Uncomfortable) We Think You Should Know About It.

Absolutely, You may find a great investment if you look elsewhere. so take a look at this Free List of companies that insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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This article from Simply Wall St is general in nature. We only provide commentary based on historical data and analyst forecasts using unbiased methodologies and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock, and does not take into account 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 take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St does not have any position in any of the stocks mentioned.

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