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Does Bird River Resources Inc. (CNSX:BDR) Need To Issue More Shares?

Simply Wall St

Bird River Resources Inc. (CNSX:BDR) continues its loss-making streak, announcing negative earnings for its latest financial year ending. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to raise further funds. This may not always be on good terms, which could hurt current shareholders if the new deal lowers the value of their shares. Bird River Resources may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question.

See our latest analysis for Bird River Resources

What is cash burn?

Bird River Resources currently has CA$207k in the bank, with negative free cash flow of -CA$3.1m. The riskiest factor facing investors of Bird River Resources is the potential for the company to run out of cash without the ability to raise more money. Unprofitable companies operating in the highly risky energy industry often face this problem, and Bird River Resources is no exception. The activities of these companies tend to be project-driven, which generates lumpy cash flows, meaning the business can be loss-making for a period of time while it invests heavily in a new project.

CNSX:BDR Income Statement, September 19th 2019

When will Bird River Resources need to raise more cash?

When negative, free cash flow (which I define as cash from operations minus fixed capital investment) can be an effective measure of how much Bird River Resources has to spend each year in order to keep its business running.

Free cash outflows declined by 117% over the past year, which could be an indication of Bird River Resources putting the brakes on ramping up high growth. However, the current level of cash is not enough to sustain Bird River Resources’s operations and the company may need to raise more capital within the year. Although this is a relatively simplistic calculation, and Bird River Resources may continue to reduce its costs further or open a new line of credit instead of issuing new shares, this analysis still helps us understand how sustainable the Bird River Resources operation is, and when things may have to change.

Next Steps:

The risks involved in investing in loss-making Bird River Resources means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should Bird River Resources be required to raise new funds to continue operating. Keep in mind I haven't considered other factors such as how BDR is expected to perform in the future. I recommend you continue to research Bird River Resources to get a better picture of the company by looking at:

  1. Historical Performance: What has BDR's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Bird River Resources’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 April 2019. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.