I read on AG posts by Prospect and DP. Both who are finance illiterates. Perhaps some others to as no one offered a correction. Investing is about finances. Anyone who doesn't have some kind of an understanding is simply throwing darts when they choose a firm to invest in.
First of all Prosspkt. "I think. It's like buying a company for their losses to lower your revenues." False. They are bought for Tax credits. The money saved on taxes in profitable companies are then used to further grow the firm. No company ever wants lower revenue.
People confuse debts with deficits, and vice versa.
Each year, a company takes in and spends money. Revenues, from tax refunds, royalties, sales, services etc. Companies also spend money every year on wages, salaries rent promotions, Ect.,Ect.
If it spends more than it takes in over the course of one year, then it has run a deficit. A deficits apply to just one year.
If the company takes in $10 million but spends $13 million in one year, then it has run a $3 million dollar deficit. When the company runs a deficit, then it must borrow money or use cash reserves to make up the difference.
A debt is completely different. Think of debt as accumulated deficits. If the company has to borrow money pay it's bills and it is not repaid by year end, it becomes debt the following year. This debt does not disappear unless the company elects to pay it down,
Some people think that if a company takes in more money than it spends in one year, then it suddenly doesn't have any debt. This is not the case. This simply means that the company has managed to run a surplus (opposite of deficit), but any accumulated debt is still there. Unless they elect to use the surplus to eradicate the accumulated debt.
Exploration companies usually do not have long term debt. Short term they can leverage their assets to carry them through till a sale is concluded or till a PP can be arranged for funding. The JV does not permit leveraging of assets contained in the agreement by either party without mutual consent. Therefore at the present burn rate dilution appears to be inevitable.
I do not say this with sarcasm. But for anyone with no business background or does not know how to read a financial statement. "Investing for Dummies" will not make you an accountant but will give you good insight. Another excellent book for those who are in the buy and hold group is, "A random walk down Wall Street
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