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West Vault Mining (CVE:WVM) Is In A Strong Position To Grow Its Business

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether West Vault Mining (CVE:WVM) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. 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 West Vault Mining

Does West Vault Mining Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2022, West Vault Mining had cash of CA$6.9m and no debt. In the last year, its cash burn was CA$1.6m. That means it had a cash runway of about 4.2 years as of March 2022. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

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

How Easily Can West Vault Mining Raise Cash?

Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

West Vault Mining has a market capitalisation of CA$61m and burnt through CA$1.6m last year, which is 2.7% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is West Vault Mining's Cash Burn Situation?

Given it's an early stage company, we don't have a lot of data with which to judge West Vault Mining's cash burn. Certainly, we'd be more confident in the stock if it was generating operating revenue. However, it is fair to say that its cash runway gave us comfort. Overall, we think its cash burn seems perfectly reasonable, and we are not concerned by it. Separately, we looked at different risks affecting the company and spotted 3 warning signs for West Vault Mining (of which 2 don't sit too well with us!) you should know about.

Of course West Vault Mining may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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