Will Banyan Gold (CVE: BYN) spend its money wisely?
There is no doubt that money can be made by owning shares of unprofitable companies. For example, Banyan gold Shareholders (CVE: BYN) have performed very well over the past year, with the share price climbing 152%. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
In light of the sharp rise in its stock price, we believe the time has come to consider how risky Banyan Gold’s cash consumption is. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
See our latest review for Banyan Gold
Does Banyan Gold have a long cash trail?
A company’s cash flow trail is calculated by dividing its cash reserve by its cash consumption. As of March 2021, Banyan Gold had C $ 5.1 million in cash and was debt free. Importantly, its cash consumption amounted to C $ 5.2 million over the past twelve months. It therefore had a cash flow trail of around 12 months from March 2021. To be frank, this kind of short track puts us on the line, because it indicates that the company must significantly reduce its cash consumption, or raise liquidity imminently. The image below shows how her cash balance has evolved over the past few years.
How does Banyan Gold’s silver consumption change over time?
Since Banyan Gold does not currently generate any revenue, we consider it to be a start-up company. Nonetheless, we can still examine its cash consumption trajectory as part of our assessment of its cash consumption situation. Remarkably, it has actually increased its cash consumption by 223% over the past year. With this sharp increase in expenses, the company’s cash flow trail will narrow quickly as it depletes its cash reserves. Banyan Gold makes us a little nervous due to its lack of substantial operating income. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How easily can Banyan Gold raise money?
With its cash consumption going in the wrong direction, Banyan Gold shareholders may want to anticipate when the company might need to raise more cash. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the business running for another year (at the same burn rate).
Since it has a market capitalization of C $ 52 million, Banyan Gold’s C $ 5.2 million of cash consumption is equivalent to approximately 9.9% of its market value. That’s a small proportion, so we think the company would be able to raise more cash to finance its growth, with a bit of dilution, or even just borrow money.
How risky is Banyan Gold’s cash burn situation?
On this analysis of Banyan Gold’s cash burn, we think its cash burn relative to its market capitalization was reassuring, while its growing cash burn worries us a little. Looking at the factors mentioned in this short report, we think its consumption of cash is a bit risky, and that makes us slightly nervous about the stock. Diving deeper, we spotted 5 warning signs for Banyan Gold you need to be aware, and 2 of them are potentially serious.
Of course Banyan Gold may not be the best stock to buy. So you might want to see this free a set of companies with a high return on equity, or that list of stocks that insiders buy.
If you are looking for stocks to buy, use the cheapest platform * which is ranked # 1 overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.