Canada markets closed
  • S&P/TSX

    20,269.97
    +89.37 (+0.44%)
     
  • S&P 500

    4,305.20
    +8.06 (+0.19%)
     
  • DOW

    34,152.01
    +239.61 (+0.71%)
     
  • CAD/USD

    0.7784
    +0.0031 (+0.40%)
     
  • CRUDE OIL

    86.89
    +0.36 (+0.42%)
     
  • BTC-CAD

    30,677.42
    -447.46 (-1.44%)
     
  • CMC Crypto 200

    569.15
    -2.76 (-0.48%)
     
  • GOLD FUTURES

    1,790.30
    +0.60 (+0.03%)
     
  • RUSSELL 2000

    2,020.53
    -0.82 (-0.04%)
     
  • 10-Yr Bond

    2.8240
    +0.0330 (+1.18%)
     
  • NASDAQ futures

    13,648.25
    -10.00 (-0.07%)
     
  • VOLATILITY

    19.69
    -0.26 (-1.30%)
     
  • FTSE

    7,536.06
    +26.91 (+0.36%)
     
  • NIKKEI 225

    28,868.91
    -2.89 (-0.01%)
     
  • CAD/EUR

    0.7651
    +0.0026 (+0.34%)
     

We're Hopeful That Silver Tiger Metals (CVE:SLVR) Will Use Its Cash Wisely

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

We can readily understand why investors are attracted to unprofitable companies. 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 Silver Tiger Metals (CVE:SLVR) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; 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 Silver Tiger Metals

How Long Is Silver Tiger Metals' 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. As at March 2021, Silver Tiger Metals had cash of CA$26m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was CA$8.2m. That means it had a cash runway of about 3.2 years as of March 2021. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Silver Tiger Metals' Cash Burn Changing Over Time?

Because Silver Tiger Metals isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. Its cash burn positively exploded in the last year, up 703%. With that kind of spending growth its cash runway will shorten quickly, as it simultaneously uses its cash while increasing the burn rate. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Silver Tiger Metals Raise More Cash Easily?

While Silver Tiger Metals 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. 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.

Since it has a market capitalisation of CA$149m, Silver Tiger Metals' CA$8.2m in cash burn equates to about 5.5% of its market value. 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.

How Risky Is Silver Tiger Metals' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Silver Tiger Metals is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Silver Tiger Metals (of which 1 is a bit unpleasant!) you should know about.

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.

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting