We Think EV Nickel (CVE:EVNI) Can Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. By way of example, EV Nickel (CVE:EVNI) has seen its share price rise 693% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky EV Nickel's cash burn is. 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. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for EV Nickel

Does EV Nickel Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When EV Nickel last reported its March 2024 balance sheet in May 2024, it had zero debt and cash worth CA$6.8m. Looking at the last year, the company burnt through CA$3.1m. That means it had a cash runway of about 2.2 years as of March 2024. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

How Is EV Nickel's Cash Burn Changing Over Time?

EV Nickel didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 40% over the last year suggests some degree of prudence. EV Nickel makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can EV Nickel Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for EV Nickel to raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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 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).

EV Nickel has a market capitalisation of CA$55m and burnt through CA$3.1m last year, which is 5.6% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is EV Nickel's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way EV Nickel is burning through its cash. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking a deeper dive, we've spotted 3 warning signs for EV Nickel you should be aware of, and 2 of them are significant.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)

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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.