We can readily understand why investors are attracted to unprofitable companies. For example, EV Nickel (CVE:EVNI) shareholders have done very well over the last year, with the share price soaring by 468%. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

In light of its strong share price run, we think now is a good time to investigate how risky EV Nickel's cash burn is. 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for EV Nickel

How Long Is EV Nickel's Cash Runway?

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. When EV Nickel last reported its June 2024 balance sheet in October 2024, it had zero debt and cash worth CA$6.1m. Looking at the last year, the company burnt through CA$2.9m. So it had a cash runway of about 2.1 years from June 2024. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Is EV Nickel's Cash Burn Changing Over Time?

EV Nickel 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. Even though it doesn't get us excited, the 32% reduction in cash burn year on year does suggest the company can continue operating for quite some time. EV Nickel 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.

How Easily Can EV Nickel Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for EV Nickel to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

EV Nickel's cash burn of CA$2.9m is about 4.9% of its CA$60m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.