Just because a business isn’t making money doesn’t mean the stock will go down. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
So should Norsk Titanium (OB: NTI) Are shareholders worried about its consumption of cash? In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash flow track.
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Does Norsk Titanium have a long cash trail?
A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of June 2021, Norsk Titanium had US $ 35 million in cash and debt so minimal that we can ignore it for the purposes of this analysis. It is important to note that its cash consumption amounted to US $ 26 million in the past twelve months. It therefore had a cash flow trail of around 16 months from June 2021. Notably, one analyst predicts that Norsk Titanium will break even (at the level of free cash flow) in around 4 years. Essentially, this means that the business will either reduce its consumption of cash or need more cash. The image below shows how his cash balance has evolved over the past few years.
How does Norsk Titanium silver consumption change over time?
In our opinion, Norsk Titanium is not yet producing significant operating revenues, having brought in only US $ 484,000 in the past twelve months. Therefore, for the purposes of this analysis, we will focus on monitoring cash consumption. It turns out that the company’s cash consumption has decreased by 5.9% over the past year, which suggests that management is maintaining a fairly stable pace of business development, albeit with a slight decrease in expenses. If the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
How easily can Norsk Titanium raise funds?
Even though it has recently reduced its cash consumption, shareholders should still consider how easy it would be for Norsk Titanium to raise more cash in the future. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their growth. By looking at a company’s cash consumption relative to its market capitalization, we get an idea of how many shareholders would be diluted if the company needed to raise enough cash to cover a company’s cash consumption. other year.
Norsk Titanium has a market cap of US $ 207 million and spent US $ 26 million last year, or 13% of the company’s market value. Given this situation, it’s fair to say that the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
How risky is Norsk Titanium’s cash flow situation?
Norsk Titanium appears to be quite healthy when it comes to its silver consumption situation. Not only was his cash flow track good enough, but his cash consumption relative to his market cap was really positive. A real bright spot is that at least one analyst predicts the business will break even. Businesses that burn money are always on the riskier side of things, but after looking at all the factors discussed in this short article, we aren’t too concerned about its rate of cash consumption. Diving deeper, we spotted 3 warning signs for Norsk Titanium you need to be aware of it, and one of them is important.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. 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 documents. Simply Wall St has no position in the mentioned stocks.
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