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We're Not Worried About Talisman Mining's (ASX:TLM) Cash Burn

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We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 this risk, we thought we'd take a look at whether Talisman Mining (ASX:TLM) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Talisman Mining

When Might Talisman Mining Run Out Of Money?

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 2021, Talisman Mining had AU$10m in cash, and was debt-free. Looking at the last year, the company burnt through AU$1.7m. Therefore, from December 2021 it had 5.9 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Talisman Mining's Cash Burn Changing Over Time?

In the last year, Talisman Mining did book revenue of AU$3.7m, but its revenue from operations was less, at just AU$13k. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. Notably, its cash burn was actually down by 70% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. Admittedly, we're a bit cautious of Talisman Mining due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can Talisman Mining Raise Cash?

While we're comforted by the recent reduction evident from our analysis of Talisman Mining's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.

Since it has a market capitalisation of AU$34m, Talisman Mining's AU$1.7m in cash burn equates to about 5.1% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Talisman Mining's Cash Burn?

As you can probably tell by now, we're not too worried about Talisman Mining's cash burn. For example, we think its cash runway suggests that the company is on a good path. And even its cash burn relative to its market cap was very encouraging. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Talisman Mining that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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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