There's no doubt that money can be made by owning shares of unprofitable businesses. Indeed, Omai Gold Mines (CVE:OMG) stock is up 256% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for Omai Gold Mines shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Omai Gold Mines

When Might Omai Gold Mines Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2024, Omai Gold Mines had US$9.3m in cash, and was debt-free. Importantly, its cash burn was US$2.6m over the trailing twelve months. Therefore, from June 2024 it had 3.6 years of cash runway. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Is Omai Gold Mines' Cash Burn Changing Over Time?

Because Omai Gold Mines isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 25% over the last year suggests some degree of prudence. Admittedly, we're a bit cautious of Omai Gold Mines due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Omai Gold Mines Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Omai Gold Mines to raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Omai Gold Mines' cash burn of US$2.6m is about 4.1% of its US$64m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.