Kalo Gold Holdings (CVE:KALO) Is In A Good Position To Deliver On Growth Plans

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. 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 Kalo Gold Holdings (CVE:KALO) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Kalo Gold Holdings

When Might Kalo Gold Holdings Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at February 2021, Kalo Gold Holdings had cash of CA$2.9m and no debt. Looking at the last year, the company burnt through CA$455k. So it had a cash runway of about 6.4 years from February 2021. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

How Is Kalo Gold Holdings' Cash Burn Changing Over Time?

Because Kalo Gold Holdings 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. The skyrocketing cash burn up 195% year on year certainly tests our nerves. With spending growing that quickly, shareholders will be hoping that the money is prudently spent. Admittedly, we're a bit cautious of Kalo Gold Holdings 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 Hard Would It Be For Kalo Gold Holdings To Raise More Cash For Growth?

Given its cash burn trajectory, Kalo Gold Holdings shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. 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.

Kalo Gold Holdings has a market capitalisation of CA$26m and burnt through CA$455k last year, which is 1.7% 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.

So, Should We Worry About Kalo Gold Holdings' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Kalo Gold Holdings 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. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Kalo Gold Holdings that potential shareholders should take into account before putting money into a stock.

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)

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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.
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