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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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Summa Silver (CVE:SSVR) shareholders be worried about its cash burn? 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Summa Silver

How Long Is Summa Silver's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In November 2024, Summa Silver had CA$5.4m in cash, and was debt-free. Looking at the last year, the company burnt through CA$6.0m. So it had a cash runway of approximately 11 months from November 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.

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How Is Summa Silver's Cash Burn Changing Over Time?

Because Summa Silver 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. Given the length of the cash runway, we'd interpret the 37% reduction in cash burn, in twelve months, as prudent if not necessary for capital preservation. Summa Silver makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Summa Silver Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Summa Silver to raise more cash in the future. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.