Yahoo Finance Will iMining Blockchain and Cryptocurrency (CVE:IMIN) Spend Its Cash Wisely?
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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should iMining Blockchain and Cryptocurrency (CVE:IMIN) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Check out our latest analysis for iMining Blockchain and Cryptocurrency
How Long Is iMining Blockchain and Cryptocurrency's Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When iMining Blockchain and Cryptocurrency last reported its balance sheet in November 2019, it had zero debt and cash worth CA$6.8k. In the last year, its cash burn was CA$39k. Therefore, from November 2019 it had roughly 2 months of cash runway. It's extremely surprising to us that the company has allowed its cash runway to get that short! You can see how its cash balance has changed over time in the image below.
How Is iMining Blockchain and Cryptocurrency's Cash Burn Changing Over Time?
Because iMining Blockchain and Cryptocurrency 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. From a cash flow perspective, it's great to see the company's cash burn dropped by 99% over the last year. While that hardly points to growth potential, it does at least suggest the company is trying to survive. Admittedly, we're a bit cautious of iMining Blockchain and Cryptocurrency due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Easily Can iMining Blockchain and Cryptocurrency Raise Cash?
While we're comforted by the recent reduction evident from our analysis of iMining Blockchain and Cryptocurrency's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash to drive 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.
iMining Blockchain and Cryptocurrency's cash burn of CA$39k is about 4.5% of its CA$873k market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
So, Should We Worry About iMining Blockchain and Cryptocurrency's Cash Burn?
Even though its cash runway makes us a little nervous, we are compelled to mention that we thought iMining Blockchain and Cryptocurrency's cash burn reduction was relatively promising. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for iMining Blockchain and Cryptocurrency (4 are potentially serious!) that you should be aware of before investing here.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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.
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. Thank you for reading.
