We Think Mirasol Resources (CVE:MRZ) Can Afford To Drive Business Growth

Simply Wall St

We can readily understand why investors are attracted to unprofitable companies. 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Mirasol Resources (CVE:MRZ) shareholders 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.

See our latest analysis for Mirasol Resources

How Long Is Mirasol Resources' 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. When Mirasol Resources last reported its balance sheet in September 2020, it had zero debt and cash worth CA$16m. Looking at the last year, the company burnt through CA$5.9m. So it had a cash runway of about 2.7 years from September 2020. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

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

How Is Mirasol Resources' Cash Burn Changing Over Time?

Mirasol Resources 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. Over the last year its cash burn actually increased by 26%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Mirasol Resources 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 Mirasol Resources Raise More Cash Easily?

Given its cash burn trajectory, Mirasol Resources shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of CA$28m, Mirasol Resources' CA$5.9m in cash burn equates to about 22% of its market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

How Risky Is Mirasol Resources' Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Mirasol Resources' cash runway was relatively promising. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Mirasol Resources (1 is concerning!) 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 interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

This article by Simply Wall St is general in nature. 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.

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

Latest Stories

  • Trump appears to back plan to overturn election result in Congress amid more false claims of fraud

    President seems to be banking on Republican politicians disrupting the vote-counting session on 6 January

  • 4 arrested in Mexico crash that killed current, ex-governor

    Four people have been arrested in connection with the 2018 crash of a helicopter that killed a central Mexican governor and her husband — who had preceded her as governor — authorities said Friday. The Agusta 109 helicopter crashed in flames 10 minutes after takeoff on Dec. 24 that year while carrying newly installed Puebla Gov. Martha Erika Alonso and her husband, former Gov. Rafael Moreno Valle, as well as three other people. The Puebla state prosecutor's office said the four suspects worked for a Rotor Flight Services, a company “related to the functioning of the aircraft,” It said the suspects were accused of culpable homicide, damage to another's property and false testimony.

  • Royal Caribbean tries to block families suing over fatal tour to island of live volcano

    Royal Caribbean, the world's largest cruise company, is trying to prevent victims of the 2019 New Zealand volcanic eruption from suing in the US. Passengers from the Royal Caribbean ship Ovation of the Seas took a trip to White Island, a popular tourist site, last December, when a volcano suddenly erupted, killing 27 visitors and injuring 25 more. Ivy and Paul Reed, from the US state of Maryland, who suffered burns as a result of the eruption, and Australians Marie and Stephanie Browitt, who lost family members because of the eruption, filed separate lawsuits against Royal Caribbean claiming that the cruise line did not properly explain the dangers of visiting White Island. Peter Gordon, a lawyer for the Browitt family, told the Australian Broadcasting Company that Royal Caribbean should have known that the volcano could erupt before allowing its passengers to visit White Island.

  • Two sentenced for selling alcohol to woman who caused fatal crash

    Colorado State Patrol estimated Lindsey Ward's blood alcohol level was more than three times the legal limit at the time of the crash.

  • Japan official, calling Taiwan 'red line,' urges Biden to 'be strong'

    A top Japanese defence official on Friday urged U.S. President-elect Joe Biden to "be strong" in supporting Taiwan in the face of an aggressive China, calling the island's safety a "red line." In an interview, Nakayama, Japan's deputy defence minister, urged Biden to take a similar line on Taiwan as outgoing President Donald Trump, who has significantly boosted military sales to the Chinese-claimed island and increased engagement.

  • Human remains found at blast site of bomb-rigged vehicle playing message that it was about to explode

    Police believe the act was intentional

  • Sheriff's deputy shoots man after exchanging fire in Houston

    A sheriff's deputy fatally shot a 31-year-old man at a Houston apartment complex early Friday, after the man opened fire on the deputy who was responding to a domestic violence call, authorities said. Harris County Sheriff’s Office Lt. Robert Minchew said the events that led up to the shooting around 4:30 a.m. on Christmas morning began the night before. Around 10:20 p.m. Thursday, a woman called police to report that her ex-boyfriend was at her north Houston apartment and threating to “shoot up the place,” Minchew said.

  • Boris Johnson 'totally capitulated' on fishing in trade deal, say EU diplomats

    Boris Johnson has "totally capitulated" on fishing in the EU trade deal negotiations, but both sides have compromised, EU diplomatic sources have claimed. On Thursday Mr Johnson finally accepted the bloc’s final offer of returning 25 percent of the value of fish caught in UK waters to British fishermen. It was a “big move”, sources said, because he had been demanding 35 percent of the value of the catch. French officials claimed that the British had made major last minute concessions. The UK and EU settled on a five and a half year transition period before annual negotiations over fishing opportunities would begin. There was satisfaction in Brussels at having forced the prime minister into the climbdown but anxiety he will not be able to sell the deal to hardline Brexiteers in his party. “It won’t be a total victory. It never is,” an EU diplomat said. “I am a little concerned that London has not got the landing rights for the deal with its constituents.” “Whatever happens will be presented as a great victory. The Europeans will yawn,” another source said before confidently predicting that Mr Johnson has the European Research Group of MPs “in his pocket”.

  • India detains 75 in Kashmir after local election

    India's government detained at least 75 Kashmiri political leaders and activists to forestall political unrest after an alliance of Kashmir's regional political parties won a local election, leaders and a police official said on Saturday. The District Council election, concluded early this week, was the first such exercise since Prime Minister Narendra Modi's government last year revoked the special status of the Muslim-majority, Indian-controlled region. The new detentions, including separatist leaders and members of the banned Jamat-e-Islami group, were for preventive custody, said a senior police official, who asked not to be identified in line with official policy.

  • Christmas in Florida: Chilly forecast, falling iguanas

    With unexpectedly cold weather in the forecast and pandemic-related curfews in some places, Florida is about to have a Christmas unlike any other in recent memory, and it may involve falling iguanas. The National Weather Service earlier this week warned that South Florida could experience the coldest Christmas Day in 21 years. Morning lows on Saturday could drop into the low 30s and 40s degrees Fahrenheit, the weather service said.

  • Cuomo grants Christmas clemency to 21 people including women locked up for killing abusive partners

    Christmas clemency for women convicted of murder and manslaughter

  • Russian cat rescued from rubbish plant receives honorary ministerial role

    A Russian cat rescued from a rubbish separator at a waste processing plant has been adopted by the Ulyanovsk region’s environment ministry and given an honorary title. The black and white cat has achieved local celebrity status in Ulyanovsk, a city 435 miles east of Moscow, after surveillance camera footage showed a worker at the sorting facility grabbing a bag from a conveyor belt and opening it to discover the feline inside. “I felt something soft inside the bag,” plant worker Mikhail Tukash told the tabloid Moskovsky Komsomolets, Reuters reported. “I cut the bag open slightly and I saw eyes looking back at me.” The footage shows the conveyor belt come to a stop as Mr Tukash shows his colleagues the cat, which remains calm as he strokes it with gloved hands. “I needed to cut the bag to screen it for metals. I was just doing my job,” Mr Tukash told local television in the city, which is known as the birthplace of Soviet leader Vladimir Lenin. The local channel reported that workers at the plant had previously rescued an African hedgehog nicknamed Vezunka, which means lucky in Russian, and two red-eared slider turtles. The region’s environment ministry lauded Mr Tukash for the rescue, writing that the male cat was “on the brink of death” and would have “ended up in the trash separator” had Mr Tukash not grabbed him. The well-fed and friendly cat was likely an abandoned household pet, the ministry said. “If you can’t keep an animal at home, you can always give it away to a shelter,” minister Gulnara Rakhmatulina said in a statement. After adopting the cat and bestowing upon him the honorary title of honorary deputy in charge of wildlife protection, the ministry released photos of him catnapping in the minister’s chair. The ministry has announced a contest to name the rescued cat.

  • Erdogan says Turkey would like better ties with Israel, criticizes Palestine policy

    President Tayyip Erdogan said that Turkey would like to have better ties with Israel, but criticized Israeli policy toward Palestinians as "unacceptable" and a "red line" for Ankara, adding that intelligence talks resumed between the two sides. The two countries have had a bitter falling out in recent years, despite strong commercial ties, expelling ambassadors in 2018. Ankara has repeatedly condemned Israel's occupation in the West Bank and its treatment of Palestinians.

  • UPS employee confessed to fatally attacking co-worker found stabbed in truck, warrant says

    “What took you guys so long to find me?” the suspect asked Connecticut authorities who found him after he ran into the woods following the alleged attack.

  • Beaver found in Plymouth among first to be reintroduced to wild in Britain for 400 years

    A beaver rescued by police this week was among the first of its kind to be reintroduced to the wild in Britain for nearly 400 years The 20kg creature had escaped from a specially designed re-wilding enclosure near Poole Farm in Plymouth. Local officers say they were confronted with the “unusual sight” of the beaver at large on Monday and posted a photograph on social media of the runaway creature in the city. They tweeted yesterday: “An unusual sight for one of our crews on Monday night shift: Plymouth's resident beaver spotted out and about! “He has apparently been caught since and is back home for Christmas.” The male had been released into the wild at Forder Valley in November – the first in the city for 400 years. The Eurasian Beaver was originally caught in late September in the wild from the Tay Catchment in Scotland and was released as part of a nationwide trend to reintroduce beavers in the wild. The beaver’s behaviour and actions will now be monitored in the hope that its actions will reduce flooding further downstream and create habitats for wildlife in the Bircham Valley. This comes after a 25kg young male beaver was spotted in Italy for the first time in nearly 500 years, after it walked over the border from Austria or Slovenia into the Dolomites. The first clues that the rodent might be back on Italian soil were noticed by a hunting guide who spends his days roaming the mountains and forests. Forester Reinhard Pipperger had noticed at the time young trees had been felled along a stretch of the Sesto river in Northern Italy. The beaver was later photographed by a camera set up along the river by wildlife rangers.

  • 16 years on, Indian Ocean Tsunami remembered

    People in India's southern Tamil Nadu state on Saturday (December 26) paid tribute to the victims of the 2004 Indian Ocean tsunami on the 16th anniversary of the tragedy that killed around 200,000 people in Indonesia, Sri Lanka, India, Thailand and nine other countries. On the morning after Christmas Day in 2004, a 9.1 magnitude quake off northern Sumatra island triggered a tsunami with waves as high as 57 feet that swept over vulnerable coastal areas. Survivors and family members of the victims in southern Chennai and Puducherry cities lit candles, and prayed for the victims who perished in the disaster.

  • Iran says U.S. approved its funds transfer to buy COVID vaccines

    DUBAI (Reuters) -Iran has won U.S. approval to transfer funds for coronavirus vaccines from overseas, the central bank chief said on Thursday, as its daily death toll fell to a three-month low. Central Bank governor Abdolnaser Hemmati said an Iranian bank had received backing from the U.S. Treasury's Office of Foreign Assets Control to transfer the money to a Swiss bank to pay for the vaccines. There was no immediate U.S. reaction to Hemmati's remarks.

  • Donald Trump announces he made Christmas speech to deployed troops but ‘fake news’ wasn’t invited

    Speech came hours after Mr Trump golfed in Florida with Lindsey Graham

  • Covid-19: Sri Lanka forcibly cremates Muslim baby sparking anger

    Sri Lankan officials insist on cremating all those who die with Covid-19, angering Muslim families.

  • River 'foam party' prompts Russian investigation

    While some social media users referred to the scene jokingly as 'a foam party', others expressed concern about the cause of it and a threat it may pose to nature. Russia's environment watchdog Rosprirodnadzor said its inspectors were investigating the incident which could have been caused by illegal dumping of chemicals. The watchdog also said minor traces of an oily substance - possibly used in the production of washing liquid - were found in the river and the samples were taken for further studies. The local prosecutor's office said it was conducting checks to identify a source of the illegal dumping.