Yahoo Finance Can Minerva Intelligence (CVE:MVAI) Afford To Invest In Growth?
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, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether Minerva Intelligence (CVE:MVAI) shareholders should 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'.
See our latest analysis for Minerva Intelligence
When Might Minerva Intelligence Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Minerva Intelligence last reported its balance sheet in December 2019, it had zero debt and cash worth CA$3.9m. Importantly, its cash burn was CA$2.8m over the trailing twelve months. Therefore, from December 2019 it had roughly 17 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.
How Is Minerva Intelligence's Cash Burn Changing Over Time?
In our view, Minerva Intelligence doesn't yet produce significant amounts of operating revenue, since it reported just CA$185k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. During the last twelve months, its cash burn actually ramped up 75%. While this spending increase is no doubt intended to drive growth, if the trend continues the company's cash runway will shrink very quickly. Minerva Intelligence makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Hard Would It Be For Minerva Intelligence To Raise More Cash For Growth?
While Minerva Intelligence does have a solid cash runway, its cash burn trajectory may have some shareholders thinking 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. Commonly, a business will sell new shares in itself to raise cash to drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Minerva Intelligence has a market capitalisation of CA$3.1m and burnt through CA$2.8m last year, which is 89% of the company's market value. Given just how high that expenditure is, relative to the company's market value, we think there's an elevated risk of funding distress, and we would be very nervous about holding the stock.
So, Should We Worry About Minerva Intelligence's Cash Burn?
On this analysis of Minerva Intelligence's cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. On another note, Minerva Intelligence has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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.
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