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Just because a business does not make any money, does not mean that the stock will go down. By way of example, F3 Uranium (CVE:FUU) has seen its share price rise 169% over the last year, delighting many shareholders. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given its strong share price performance, we think it’s worthwhile for F3 Uranium shareholders to consider whether its cash burn is concerning. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.

View our latest analysis for F3 Uranium

Does F3 Uranium Have A Long Cash Runway?

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 December 2022, F3 Uranium had CA$14m in cash, and was debt-free. Looking at the last year, the company burnt through CA$15m. That means it had a cash runway of around 11 months as of December 2022. That’s quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis

debt-equity-history-analysis

How Is F3 Uranium’s Cash Burn Changing Over Time?

Because F3 Uranium isn’t currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Remarkably, it actually increased its cash burn by 379% in the last year. Given that sharp increase in spending, the company’s cash runway will shrink rapidly as it depletes its cash reserves. F3 Uranium makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can F3 Uranium Raise More Cash Easily?

Since its cash burn is moving in the wrong direction, F3 Uranium shareholders may wish to think ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company’s annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

F3 Uranium’s cash burn of CA$15m is about 13% of its CA$118m market capitalisation. Given that situation, it’s fair to say the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

So, Should We Worry About F3 Uranium’s Cash Burn?

On this analysis of F3 Uranium’s cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Summing up, we think the F3 Uranium’s cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 6 warning signs for F3 Uranium (of which 3 are significant!) you should know about.

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)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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