We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Peninsula Energy (ASX:PEN) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Peninsula Energy

When Might Peninsula Energy Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Peninsula Energy last reported its June 2024 balance sheet in September 2024, it had zero debt and cash worth US$100m. In the last year, its cash burn was US$28m. That means it had a cash runway of about 3.5 years as of June 2024. Importantly, though, analysts think that Peninsula Energy will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

How Well Is Peninsula Energy Growing?

It was quite stunning to see that Peninsula Energy increased its cash burn by 285% over the last year. And that is all the more of a concern in light of the fact that operating revenue was actually down by 71% in the last year, as the company no doubt scrambles to change its fortunes. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Peninsula Energy Raise Cash?

While Peninsula Energy seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.