Here’s why we’re a little worried about Kin Mining’s cash flow situation (ASX: KIN)


Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, although suffered losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.

So should Kin Mining (ASX: KIN) 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. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.

See our latest analysis for Kin Mining

Does Kin Mining have a long cash flow trail?

A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. Kin Mining has such low debt that we’re going to put it aside and focus on the AU $ 7.4million it held as of June 2021. Looking at last year, the company spent AU $ 15million . It therefore had a cash flow track of around 6 months from June 2021. This is a fairly short cash flow track, which indicates that the company must either reduce its annual cash flow consumption or rebuild its cash flow. Pictured below, you can see how his cash holdings have changed over time.

ASX: KIN History of debt to equity September 17, 2021

How does Kin Mining’s cash consumption change over time?

Kin Mining has not recorded any revenue over the past year, indicating that it is a start-up company that continues to expand its business. So while we can’t look at sales to understand growth, we can look at changes in cash consumption to understand changes in expenses over time. In the last twelve months, its cash consumption has actually increased by 100%. Often times, increased cash consumption just means that a business is speeding up its business development, but it should always be kept in mind that this leads to a reduction in the cash flow trail. Granted, we are a little cautious of Kin Mining due to its lack of significant operating income. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Kin Mining Easily Raise More Money?

Given its cash-consuming trajectory, Kin Mining shareholders should already be thinking about how easy it might be for them to raise additional cash in the future. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By looking at one 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 another’s cash consumption. year.

Kin Mining’s cash consumption of AU $ 15 million represents approximately 17% of its market capitalization of AU $ 84 million. As a result, we venture to think that the company could raise more cash for growth without too many problems, albeit at the cost of some dilution.

How risky is Kin Mining’s cash burn situation?

On this analysis of Kin Mining’s cash consumption, we think its cash consumption relative to its market cap was reassuring, while its cash trail worries us a bit. Considering all the metrics mentioned in this report, we believe its consumption of cash is quite risky, and if we were to hold stocks, we would watch like a hawk for any deterioration. On another note, we conducted a thorough investigation of the company and identified 6 warning signs for Kin Mining (3 are a bit nasty!) Which you should be aware of before investing here.

Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that insiders buy, and this list of growth stocks (according to analysts’ forecasts)

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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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