Yahoo Finance Does Alto Ventures Ltd. (CVE:ATV) Have Enough Money Left To Grow?
Alto Ventures Ltd. (CVE:ATV) continues its loss-making streak, announcing negative earnings for its latest financial year ending. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to raise further funds. This may not always be on good terms, which could hurt current shareholders if the new deal lowers the value of their shares. Looking at Alto Ventures’s latest financial data, I will estimate when the company may run out of cash and need to raise more money.
View our latest analysis for Alto Ventures
What is cash burn?
With a negative free cash flow of -CA$654.3k, Alto Ventures is chipping away at its CA$1.1m cash reserves in order to run its business. The riskiest factor facing investors of Alto Ventures is the potential for the company to run out of cash without the ability to raise more money. Furthermore, it is not uncommon to find loss-makers in an industry such as metals and mining. Although these companies can be unprofitable now, they tend to take on project-work, which can payoff sometime in the future.
When will Alto Ventures need to raise more cash?
When negative, free cash flow (which I define as cash from operations minus fixed capital investment) can be an effective measure of how much Alto Ventures has to spend each year in order to keep its business running.
In Alto Ventures’s case, its cash outflows fell by 55% last year, which may signal the company moving towards a more sustainable level of expenses. However, even if Alto Ventures maintains its cash burn at the current level of -CA$654.3k, then given the current level of cash in the bank, Alto Ventures will still have to raise capital again in 1.7 years. Although this is a relatively simplistic calculation, and Alto Ventures may continue to reduce its costs further or borrow money instead of raising new equity capital, this analysis still helps us understand how sustainable the Alto Ventures operation is, and when things may have to change.
Next Steps:
The risks involved in investing in loss-making Alto Ventures means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should Alto Ventures raise capital to fund its growth. I admit this is a fairly basic analysis for ATV's financial health. Other important fundamentals need to be considered as well. I suggest you continue to research Alto Ventures to get a more holistic view of the company by looking at:
Historical Performance: What has ATV's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Alto Ventures’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2019. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
