Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, biotechnology and mineral exploration companies often lose money for years before achieving success with a new treatment or mineral discovery. But the harsh reality is that many, many loss-making companies burn through all their cash and go bankrupt.
It would therefore be necessary Bridge of Light (NASDAQ:LTBR) are shareholders worried about its cash burn? In this report, we will look at the company’s annual negative free cash flow, which we will henceforth refer to as cash burn. The first step is to compare its cash burn with its cash reserves, to give us its “cash runway”.
Check out our latest analysis for Lightbridge
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 money. As of September 2024, Lightbridge had cash of US$27 million and no debt. Last year, the company spent $8.0 million. This means it had around 3.3 years of cash flow as of September 2024. There’s no doubt that this is a reassuringly long time frame. The image below shows how its cash balance has changed over the past few years.
Since Lightbridge is not currently generating revenue, we consider it an early-stage company. Nonetheless, we can still look at its cash burn trajectory as part of our assessment of its cash burn situation. With the cash burn rate up 18% over the past year, it appears the company is increasing its investment in the business over time. However, the company’s true cash flow will therefore be shorter than suggested above, if expenses continue to rise. Admittedly, we’re a little cautious about Lightbridge due to its lack of meaningful operating revenue. We therefore generally prefer stocks of This list of stocks that analysts are forecasting growth for.
Although Lightbridge has a strong source of cash, its cash burn trajectory could have some shareholders thinking about when the company might need to raise more cash. Companies can raise capital through debt or equity. Many companies end up issuing new shares to finance future growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for one more year (at the same burn rate).