Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Peninsula Energy (ASX:PEN) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Our free stock report includes 4 warning signs investors should be aware of before investing in Peninsula Energy. Read for free now.

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 December 2024 balance sheet in March 2025, it had zero debt and cash worth US$45m. Looking at the last year, the company burnt through US$79m. That means it had a cash runway of around 7 months as of December 2024. Importantly, analysts think that Peninsula Energy will reach cashflow breakeven in around 20 months. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

View our latest analysis for Peninsula Energy

How Is Peninsula Energy's Cash Burn Changing Over Time?

Peninsula Energy didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Its cash burn positively exploded in the last year, up 1,012%. Given that sharp increase in spending, the company's cash runway will shrink rapidly as it depletes its cash reserves. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Peninsula Energy Raise More Cash Easily?

Since its cash burn is moving in the wrong direction, Peninsula Energy shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Peninsula Energy has a market capitalisation of US$67m and burnt through US$79m last year, which is 118% of the company's market value. Given just how high that expenditure is, relative to the company's market value, we think there's an elevated risk of funding distress, and we would be very nervous about holding the stock.

Is Peninsula Energy's Cash Burn A Worry?

Peninsula Energy is not in a great position when it comes to its cash burn situation. While its cash runway wasn't too bad, its cash burn relative to its market cap does leave us rather nervous. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Once we consider the metrics mentioned in this article together, we're left with very little confidence in the company's ability to manage its cash burn, and we think it will probably need more money. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Peninsula Energy (of which 3 make us uncomfortable!) you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.