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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Victor Group Holdings (ASX:VIG) shareholders is whether they should be concerned by its rate of 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. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for Victor Group Holdings
When Might Victor Group Holdings Run Out Of Money?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2024, Victor Group Holdings had cash of AU$842k and no debt. In the last year, its cash burn was AU$949k. So it had a cash runway of approximately 11 months from December 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.
Is Victor Group Holdings' Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Victor Group Holdings actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Regrettably, the company's operating revenue moved in the wrong direction over the last twelve months, declining by 19%. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Victor Group Holdings has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Victor Group Holdings To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, Victor Group Holdings shareholders may wish to think ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.