In This Article:
There's no doubt that money can be made by owning shares of unprofitable businesses. 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether West Vault Mining (CVE:WVM) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for West Vault Mining
How Long Is West Vault Mining's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When West Vault Mining last reported its December 2023 balance sheet in April 2024, it had zero debt and cash worth CA$4.6m. In the last year, its cash burn was CA$1.2m. So it had a cash runway of about 3.7 years from December 2023. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.
How Is West Vault Mining's Cash Burn Changing Over Time?
Because West Vault Mining 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. With cash burn dropping by 10% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. West Vault Mining makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Hard Would It Be For West Vault Mining To Raise More Cash For Growth?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for West Vault Mining to raise more cash in the future. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.